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TMI BlogAddresses the mechanism for granting tax credit for MAT/AMT paid in excess of regular tax liability by Companies : Clause 206(13)-(16) of the Income Tax Bill, 2025 Vs. Section 115JAA of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1961. This commentary provides an in-depth analysis of Clause 206(13)-(16) of the Income Tax Bill, 2025, which deals with the grant, carry forward, and set-off of tax credit for MAT/AMT, and compares these provisions with those contained in Section 115JAA. The analysis focuses on the legislative intent, mechanics, practical implications, and differences between the two regimes. Objective and Purpose The primary objective of MAT/AMT provisions is to ensure a minimum tax payment by companies and specified non-corporate entities, particularly those who, due to various exemptions, deductions, or incentives, might otherwise pay little or no tax. However, to mitigate the hardship of paying MAT/AMT in years where regular income tax is less than MAT/AMT, the legislature has provided a mechanism to allow the excess tax paid to be carried forward and set off against future regular tax liability. This mechanism is intended to provide equitable treatment and to avoid double taxation over time. Clause 206(13)-(16) of the Income Tax Bill, 2025, and Section 115JAA of the Income-tax Act, 1961, both operationalize this concept by providing for the computation, carry forward, set-off, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : The credit can be set off in a year when the normal tax liability exceeds the MAT/AMT liability, to the extent of the difference between the two. * Limitation: No carry forward is allowed beyond the fifteenth year. This provision provides a long window for utilization of MAT/AMT credit, reflecting the recognition that business cycles and tax liabilities can fluctuate over time. Clause 206(16): Adjustment of Credit on Subsequent Orders Clause 206(16) provides that if, as a result of any order passed under the Act, the tax payable is reduced or increased, the MAT/AMT credit allowed under sub-section (13) shall be increased or reduced accordingly. * Dynamic Adjustment: Ensures that MAT/AMT credit reflects the actual incremental tax paid, as determined after appeals, revisions, or rectifications. * Integration with Dispute Resolution: Maintains the integrity of the credit mechanism even as tax assessments are altered through the legal process. This clause is critical for accuracy and fairness, preventing over-crediting or under-crediting of MAT/AMT in light of subsequent changes to tax liability. Practical Implications of Clause 206(13)-(16) The provisions under Clause 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against MAT/AMT exceeds what is admissible under regular tax, the excess is ignored in MAT/AMT credit computation. This prevents double counting and aligns with international tax principles. 5. Carry Forward and Set-off Period A significant difference historically existed in the period for which MAT credit could be carried forward. Section 115JAA originally allowed a 5-year period, later extended to 10 and then to 15 years (currently 15 years for tax paid u/s 115JB). Clause 206(15) continues with the 15-year period, ensuring continuity and providing taxpayers with a long window to utilize credit. 6. Set-off Mechanism Both Section 115JAA(4)-(5) and Clause 206(15) specify that set-off is allowed only to the extent the regular tax exceeds MAT/AMT for the year. The mechanism is essentially unchanged, preventing set-off in years when MAT/AMT continues to be higher. 7. Adjustment upon Change in Assessment Section 115JAA(6) and Clause 206(16) both provide for adjustment of MAT/AMT credit if tax liability changes due to assessment, rectification, or appellate orders. This dynamic adjustment ensures fairness and accuracy over the life of the credit. 8. Cessation of Credit upon Conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent's position on not compensating for time value of money Foreign Tax Credit Adjustment Sub-section (14)(b): Excess foreign tax credit ignored in MAT/AMT credit computation Second proviso to sub-section (2A): Similar adjustment for foreign tax credit Mechanism is preserved; ensures no double benefit from foreign tax credits Carry Forward and Set-Off Sub-section (15): Carry forward up to 15 years; set off in years when regular tax exceeds MAT/AMT Sub-section (3A): Carry forward up to 15 years (previously 10/5 years); sub-sections (4), (5) for set-off Carry forward period harmonized; operational mechanics unchanged Adjustment for Subsequent Orders Sub-section (16): MAT/AMT credit adjusted for changes in tax liability due to orders Sub-section (6): Similar adjustment for MAT credit Ensures dynamic alignment of MAT/AMT credit with actual tax liability Scope Applies to all assessees paying MAT or AMT as per Clause 206(1) Applies to companies paying MAT under 115JA/115JB Scope broadened in Bill to cover non-corporate entities under AMT Inapplicability to LLPs after Conversion Sub-section (17): Not applicable to LLPs after conversion Sub-section ..... 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Requirements: Proper disclosure in tax returns and financial statements is essential to avoid penalties and facilitate assessment. * Strategic Utilization: Companies must plan for the optimal use of MAT/AMT credit, especially when considering mergers, demergers, or changes in business models. * Transition Provisions: Companies moving from the old regime to the new one must manage the transition of credits and ensure compliance with new reporting formats. * Strategic Tax Planning: The fifteen-year window allows for long-term planning, particularly for companies with fluctuating profits or those in capital-intensive industries with significant temporary differences. * Cash Flow Considerations: While MAT/AMT may create short-term cash flow outflows, the credit mechanism mitigates the long-term impact, provided future profits are sufficient to absorb the credit. * Compliance Complexity: Accurate tracking of MAT/AMT paid, credit available, set-off utilized, and expiry of credits is essential, especially in groups with frequent restructuring or cross-border operations. * Interaction with Foreign Tax Credit: Multinational companies must be vigilant to avoid double counting an ..... 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