How to Calculate MAT
MAT calculation is based on book profits as per the company’s financial statements, adjusted for certain additions and deletions. The idea is to align accounting income with
taxable income
for a minimum threshold of tax payment.
Additions to Net Profit
To arrive at book profit, the following items are added back to the company’s net profit:
- Income tax paid or payable, and the provision for it.
- Amounts set aside for unascertained liabilities.
- Provisions for losses of subsidiary companies.
- Deferred tax and its provision.
- Expenditure related to exempt income under Section 10.
These additions ensure that any item reducing the taxable profit artificially is neutralized.
Deletions from Net Profit
Certain items are subtracted from the net profit to arrive at book profit:
- Income exempt under Section 10 (except 10(38)).
- Withdrawals from reserves or provisions.
- Profits from units in SEZs eligible for deduction under Section 10AA.
- Brought-forward loss or unabsorbed depreciation (whichever is less).
- Income from share of AOP or BOI.
These deletions adjust for items that shouldn’t form part of the minimum taxable base.
Computation of Book Profit
Book Profit = Net Profit (as per P&L Account) + Additions – Deletions
After determining the book profit, the MAT liability is calculated as:
MAT = 15% of Book Profit + Surcharge + 4% Health and Education Cess
Example:
If a company’s book profit is ₹1 crore, the MAT liability will be ₹15 lakh + surcharge and cess, irrespective of its taxable income under normal provisions.
