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TMI BlogHarmonizing Minimum Tax Computation under India's Income Tax Laws : Clause 206(2)-(5) of the Income-tax Bill, 2025 Vs. Section 115JB and Section 115JC of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ese provisions with the existing Section 115JB (MAT for companies) and Section 115JC (AMT for non-corporates) of the Income Tax Act, 1961, as well as the operational relevance of Rule 10RB of the Income-tax Rules, 1962. The analysis is structured to elucidate legislative intent, technical nuances, practical implications, and comparative perspectives. Objective and Purpose The primary objective of Clause 206 is to ensure that taxpayers, especially those availing substantial deductions or incentives, contribute a minimum quantum of tax to the exchequer. The legislative intent is to prevent the erosion of the tax base through aggressive tax planning, aligning with global best practices on minimum taxation. Sub-clauses (2) to (5) focus on the mechanisms for determining the base (book profit or adjusted total income), standardizing accounting practices, and ensuring the integrity and comparability of financial reporting for tax purposes. Historically, MAT was introduced to address the issue of "zero tax companies"-profitable companies that paid little or no tax due to various incentives. Over time, the scope was broadened to cover other entities through AMT. The 2025 Bill's Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B prescribes relief methodology for recomputation of MAT liability when past incomes are included in current book profits due to transfer pricing adjustments. While Rule 10RB is not directly referenced in Clause 206(2), the clarity in computation under Clause 206(2) facilitates easier application of such relief mechanisms, as the components of book profit are more precisely defined. Ambiguities and Issues: Despite the detailed prescription, potential ambiguities remain regarding the classification of certain items (e.g., what constitutes "ascertained" vs "unascertained" liabilities, or "provisions" under Ind AS). The inclusion/exclusion of certain reserves and the treatment of notional items may require further clarification through rules or CBDT circulars. 2. Clause 206(3): Preparation of Statement of Profit and Loss Textual Overview: This sub-clause mandates that every company must prepare its statement of profit and loss: * For insurance, banking, electricity, or other specially governed companies: as per their respective governing enactments * For all other companies: as per Schedule III to the Companies Act, 2013 Comparison with Section 115JB: Section 115JB(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policy of spreading "transition amounts" over five years and adjusting for subsequent disposal of assets or investments. Rule 10RB Relevance: The precise adjustments under Clause 206(4), especially for past income included in book profits, are essential for the correct application of Rule 10RB, which calculates relief for MAT paid on such amounts. Ambiguities and Issues: The complexity of these adjustments, especially for Ind AS adopters, may increase compliance burdens and require detailed guidance. The interplay between accounting standards and tax law continues to be a source of interpretational risk. 4. Clause 206(5): Consistency in Accounting Policies Textual Overview: Clause 206(5) mandates that, when preparing annual accounts for MAT purposes, a company must apply the same accounting policies, standards, and depreciation methods/rates as used in the accounts laid before its AGM under the Companies Act, 2013. Where the company's financial year differs from the tax year, the accounting basis must correspond to that used for the relevant period. Comparison with Section 115JB: Section 115JB(2) contains an almost identical requirement, ensuring that companies cannot use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar computational adjustments for adjusted total income. The Bill's approach is more integrated, reducing the artificial distinction between corporate and non-corporate minimum taxation. * Clause 206(2)-(5): Systematizes this into a single formula (B = P + (I-R)) and a comprehensive table, improving clarity and reducing interpretational disputes. 3. Special Adjustments for Specific Entities * Section 115JB: Contains special provisions for foreign companies, companies under insolvency, sick companies, and Ind AS adopters, but these are scattered and sometimes require cross-referencing. * Clause 206(4): Consolidates these into a single table, with detailed notes, making the law more user-friendly. 4. Ind AS Transition * Section 115JB (2A)-(2C): Introduces the concept of transition amounts, phased adjustment, and special rules for Ind AS adopters. * Clause 206(4), (19)(f): Retains these features, with updated references and improved drafting, reflecting practical experience since Ind AS adoption. 5. Consistency in Accounting Policies * Section 115JB(2) (Proviso): Requires consistency in accounting policies, standards, and depreciation methods for MAT purposes and sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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