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TMI Blogimposition of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) on various classes of taxpayers : Clause 206(1) of the Income Tax Bill, 2025 Vs. Section 115JA of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... aid little or no tax due to various deductions and exemptions available under the Act. Section 115JA sought to ensure that such companies contributed a minimum amount of tax based on their book profits. Over the years, with evolving business practices, accounting standards, and policy objectives, the MAT/AMT framework has undergone significant changes, culminating in the elaborate provisions proposed in Clause 206 of the Income Tax Bill, 2025. This commentary undertakes a detailed analysis of Clause 206(1), its objectives, mechanism, and practical implications, followed by a comparative evaluation with Section 115JA, highlighting key similarities, distinctions, and policy rationales. 2. Objective and Purpose 2.1 Legislative Intent behind Clause 206(1) The primary objective of Clause 206(1) is to ensure that all taxpayers, especially those availing of substantial deductions, exemptions, or incentives under the Income Tax Act, contribute a minimum quantum of tax based on their book profits (for companies) or adjusted total income (for other persons). The provision is designed to plug revenue leakages arising from aggressive tax planning and to promote horizontal equity in ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased, and R is the sum of items to be reduced, as detailed in sub-section (2) of Clause 206. * Adjusted Total Income (for others): Total income before effect to this section, increased by specified deductions (e.g. under Chapter VIII-C, section 144, section 46, reduced by depreciation as per section 33). 3.3 Key Provisions and Interpretative Issues 3.3.1 Items to be Increased and Reduced (Book Profit Computation) The provision meticulously enumerates items to be added back to, or deducted from, the net profit as per the statement of profit and loss. These include income-tax provisions, reserves, provisions for unascertained liabilities, losses of subsidiaries, dividends, certain expenditures, depreciation, deferred tax, diminution in asset value, and specified adjustments for special categories (e.g., Ind AS companies, companies under insolvency, etc.). Similarly, reductions are provided for withdrawals from reserves (with anti-abuse conditions), income exempt under specified provisions, depreciation (excluding revaluation), certain losses, and other specified items. This detailed approach seeks to ensure that the book profit reflects the real economic profit of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting standards and reducing the scope for accounting arbitrage. * Enhanced Compliance Burden: The detailed adjustments, reporting requirements, and need for professional certification increase compliance costs but are justified by the need for accuracy and anti-abuse. * Relief for Distressed Entities: Special reliefs for companies under insolvency or sick industrial companies provide necessary breathing space to distressed businesses. 4. Comparative Analysis: Clause 206(1) vs. Section 115JA 4.1 Scope and Applicability * Section 115JA: Applied exclusively to companies for a limited period (AY 1997-98 to AY 2000-01), with a flat MAT rate of 30% of book profit. * Clause 206(1): Applies to a much wider spectrum of taxpayers (companies, co-ops, other persons), with differentiated rates and broader, more permanent application. 4.2 Computation of Book Profit * Section 115JA: Book profit was defined as net profit per P&L account (as per Schedule VI to the Companies Act, 1956), increased by specified items (tax provisions, reserves, provisions for unascertained liabilities, etc.) and reduced by withdrawals from reserves, exempt income, certain losses, and profits from sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti-abuse rules for withdrawal from reserves/provisions. * Clause 206(1): Incorporates more sophisticated anti-abuse measures, including detailed rules for reserves, provisions, transition adjustments, and special situations. 4.10 Relief for Distressed Entities * Section 115JA: Provided relief for sick industrial companies for a limited period. * Clause 206(1): Expands relief to companies under insolvency proceedings, those with suspended boards, and provides for special treatment of profits/losses during the rehabilitation period. 5. Practical Implications and Stakeholder Impact 5.1 For Companies Clause 206(1) modernizes the MAT regime, aligning it with contemporary business realities and accounting standards. The provision ensures that companies, especially those availing of substantial deductions or operating in special economic zones, contribute a fair share of tax. The differentiated rates for IFSC units incentivize international financial activity, while the detailed computational rules reduce ambiguity and potential for disputes. 5.2 For Non-Corporate Assessees The extension of AMT to non-corporate entities (co-operatives, others) brings parity and broadens the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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