DIRECT TAX

PLANNING
ADVANCE TAX SCHEME
&
MAT

Dr. Vimal Kumar Aggarwal

 OBJECTIVE
You will be able to understand when
and how
advance tax is paid.

The due dates for payment of

advance tax, and the concept of
“the pay as you earn” scheme.

MBA-
III
2
 INTRODUCTION
• Tax is paid in advance when the liability of
advance tax is Rs.5, 000 or more.

• The provisions of advance tax are applicable on

all types of persons irrespective of the residential
status of the person. The advance tax is paid in
the previous year itself.

• Thus, the tax is paid in the year of earning of

income, in other words the earning of income
and payment of tax goes simultaneously.

• Thus, the tax is paid as income is earned. This

scheme of advance payment of tax is also
called pay as you earn scheme, i.e., pay tax as
MBA- you earn income.
III
3
 DATES OF PAYMENT OF ADVANCE
TAX
• Advance tax is paid by the all persons, both corporate assessee (company
assessee) and non-corporate assessee (other than non-corporate assessee). The
advance tax is to be paid in the following installments on the following dates:
• For Non-Corporate Assessee
– Due Dates Amount of Tax payable
– On or before 15 September - not less than 30% of tax payable
– On or before 15 December - not less than 60% of tax payable
– On or before 15 March - not less than 100% of tax payable
• For Corporate Assessee
– Due Dates Amount of Tax payable
– On or before 15 June - not less than15% of tax payable
– On or before 15 September - not less than 30% of tax payable
– On or before 15 December - not less than 60% of tax payable
– On or before 15 March - not less than 100% of tax payable

MBA-
III
4
 ADVANCE TAX
PLANNING
• Since, the actual tax and actual
income can be computed only after
completion of the year therefore, the
income is estimated at different due
dates mentioned above.

The tax on such estimated income

is computed and percentage of the
tax as mentioned above is payable
by the assessee at different due
MBA- dates.
III
5
 Minimum Alternate Tax
(MAT)

MBA-
III
6
 INTRODUCTION-MAT
• Normally, a company is liable to pay tax on
the income computed in accordance with the
provisions of the income tax Act, but the profit
and loss account of the company is prepared
as per provisions of the Companies Act.
• There were large number of companies who
had book profits as per their profit and loss
account but were not paying any tax because
income computed as per provisions of the
income tax act was either nil or negative or
insignificant.

MBA-
III
7
 Why a “ Minimum Tax”?
• When looked at from a layman’s point of
view, and on preliminary thoughts, the
principle of application of such a tax
seems to be a very reasonable, social and
fair principle.
• This is because the basic theme or logic of
having such a tax seems very appealing to
people who often wonder why they have
to pay a large proportion of their hard
earned money towards taxes while many
large companies who earn millions do
not pay any income tax at all
MBA-
III
8
 Minimum Alternate
Tax
• In such case, although the
companies were showing book
profits and declaring dividends to
the shareholders, they were not
paying any income tax. These
companies are popularly known as
Zero Tax companies.
• In order to bring such companies
under the income tax act net,
section 115JA was introduced w.e.f
MBA- assessment year 1997-98.
III
9
 Minimum Alternate Tax –
Basic concept
• MAT, as the name implies, is the minimum amount of
tax which a company has to pay, even if it is not liable
to pay any tax on its regular assessment.
• Assesses have to calculate their taxes as per the
regular method as well as per the procedure laid down
for MAT computation, and pay the tax which is higher
of the two.
• Under the regular computation, the person is entitled
to all the deductions, exemptions and incentives
available under the provisions of the tax code, such as
accelerated depreciation, investment allowance,
rebate for setting up industries in a backward area
etc.
• The resultant computed income, therefore, normally
would be much lower than the book profits.
MBA-
III
10
 Minimum Alternate Tax –
Basic concept
• However, for the computation of
income for the purposes of MAT,
there are very few adjustments, if
any, to be made to the book profits.
• Most importantly, the method of
depreciation followed for the purpose
of accounts is different from that
considered for taxation purposes.
• As a result, MAT ensures that every
profitable company would have to
MBA- pay some tax every year.
III
11
 History of MAT in India
• With a view to compel highly profitable companies, paying little or
no tax due to availment of tax incentives, the concept of MAT was
introduced in 1983 by way of insertion of section 80 VVA of the
Income Tax Act 1961. This section laid down certain restrictions on
the aggregate amount of deductions allowable under the
provisions of the Act.
• However, the unabsorbed deductions were allowed to be carried
forward and set off against taxable income in future years. Section
80 VVA remained in operation for the assessment years 1984-85
to 1987-88.
• From 1st April 1988, Section 115 J was introduced to replace
Section 80 VVA. By virtue of this section, in case of a company
whose total TAXABLE income was less than 30 % of the book
profits, the total income to be charged to income tax was deemed
to be 30 % of the book profits. Section 115 J was in operation for
the assessment years 1988-89 to 1990-91.

MBA-
III
12
 History of MAT in India
• In the year 1991-92, in view of
rationalization of tax structure
including discontinuance of
certain investment incentives, it
was felt that there should be no
necessity of retention of the
concept of a Minimum Alternate
Tax, and therefore this section
was withdrawn from
MBA- assessment year 1991-92
III
13
 History of MAT in India
• After a gap of about six years, the
Minimum Alternate Tax was re-
introduced under section 115 JA
with effect from assessment year
1997-98.
• In the next year, Section 115 JAA was
introduced to give effect to a tax
credit scheme by which the tax paid
under MAT was allowed to be carried
forward for set off against regular tax
MBA- payable during the subsequent five
III year period.
14
 History of MAT in India
• In 2000, the Government had yet another rethink on the
concept of MAT, and section 115 JB was introduced.
• The introduction of Section 115JB was a conceptual
departure from“ deemed total income” to “deemed tax“
on book profits.
• In other words, while the earlier section concentrated on
computation of a minimum deemed income, the new
section laid emphasis on computation of a minimum
deemed tax. Moreover, the provision for allowing credit
for MAT under section 115JAA was discontinued.
• In the current year, credit for MAT paid has again been allowed .

MBA-
III
15
 New Tax Credit Scheme
• A new tax credit scheme is introduced by which
MAT paid can be carried forward for set-off
against regular tax payable during the
subsequent five year period subject to certain
conditions, as under:-
– When a company pays tax under MAT, the
tax credit earned by it shall be an amount
which is the difference between the amount
payable under MAT and the regular tax.
– Regular tax in this case means the tax
payable on the basis of normal computation
of total income of the company.

MBA-
III
16
 New Tax Credit
Scheme…
• MAT credit will be allowed carry forward facility
for a period of five assessment years
immediately succeeding the assessment year
in which MAT is paid. Unabsorbed MAT credit
will be allowed to be accumulated subject to
the five year carry forward limit.

• In the assessment year when regular tax

becomes payable, the difference between the
regular tax and the tax computed under MAT
for that year will be set off against the MAT
credit available.
• The credit allowed will not bear any interest
MBA-
III
17
 Rate of MAT
• The Finance Act, 2000, inserted section 115JB of
the Income-tax Act, 1961, with effect from 1-4-
2001, i.e., from the assessment year 2001-02
providing for levy of Minimum Alternate Tax on
companies.
• However, the new provision of section 115JB
provides that if tax payable on total income is less
than 7.5% of book profit, the tax payable under this
provision shall be 7.5% of book profit

– From 1st day of April, 2007 rate is 10% of

book profit
– From 1st day of April, 2010 rate will be
15% of book profit
MBA-
III
18