About a week after North Block announced India’s biggest corporate tax cuts, different interpretations are emerging on the treatment of Minimum Alternate Tax (MAT) – and credits running into thousands of crores of rupees. Some want to claim the credits even while switching to a lower tax bracket: Others want a longer period for writing them off to prevent a one-time setback to profits.
Interpretations differ from one sector to another – IT and infrastructure, for instance, have very different views. Some of the companies say that if there is no clarification by December this year, the deadline for filing income tax returns for corporations, they will go ahead and claim the MAT credits even while opting for lower and new tax rates.
“The absence of any changes in the provisions of section 115JAA (Income Tax Act) which deal with the carry forward and set off of MAT credit supports the argument that the brought forward MAT credit should be available even for a company which opts for the lower tax regime,” said Gautam Mehra, leader, tax and regulatory services, at PwC India. “It would be important to get certainty on this front given the large stakes involved. However, if such credit were not allowable, companies would need to evaluate the write off of the tax asset while taking a decision on which option to choose.”
MAT credit is as high as ?1,500 crore for each of the top IT and infrastructure companies, and their choice will either support or dent margins in FY20.
Some other companies believe that even if there is a government clarification that denies MAT credit, they could write off the assets within the next couple of years. They have approached the government to write off accumulated credits over a longer period.
“Many companies in IT/ITES sectors, present in the Special Economic Zones, have huge MAT credits lying on their balance sheets and if these become fictitious assets, it will be a huge hit in one year,” said Vipul R Jhaveri, managing partner, tax and regulatory, Deloitte India. “The government can tweak the tax law and could direct NFRA to allow companies to write off these MAT credits over the next few years so that it’s not a huge hit in one year.”
India slashed corporate tax rates to 22% from 30% for existing companies and to 15% from 25% for new manufacturing companies. Including a surcharge and cess, the effective tax rate for existing companies would now come down to 25.17% from 35%. Companies can opt for the higher tax rates or the new ones.
MAT credit is mainly a problem for several companies that are present in SEZs as these locations have tax holidays. Many companies paid MAT but as per the tax laws it could partially set off the tax amount paid against future tax liabilities. Some companies include this amount under in the advance tax paid by them in their balance sheets. Most companies have huge MAT balances lying on their balance sheets. But new tax laws would mean that they may not be able to use these credits.
Industry trackers say that some multinationals are looking to just write off the MAT credits and opt for the new tax rates.
Companies in SEZs pay MAT at 20% effective rate and can accumulate the credit to set off when the tax holiday ends. If they choose to move to the new tax regime and lower the MAT rate, they may end up losing out on the accumulated credits.
Source : Financial Express