Consider the following statements regarding Minimum Alternate Tax (MAT): Statement I: MAT is imposed to ensure that companies with substantial book profits but low or zero tax liability still contribute a minimum tax. Statement II: MAT is computed based on the taxable profits of a company under the regular provisions of the Income Tax Act. Which one of the following is correct? |ForumIAS

[A] Both Statement I and Statement II are correct, and Statement II is the correct explanation of Statement I.

[B] Both Statement I and Statement II are correct, but Statement II is not the correct explanation of Statement I.

[C] Statement I is correct, but Statement II is incorrect.

[D] Statement I is incorrect, but Statement II is correct.

Answer: C

Notes:

Explanation:

The primary purpose of MAT is to bring companies with high book profits (but low tax liability due to exemptions/deductions) under the tax net, ensuring minimum tax contribution.
MAT is not computed on taxable profits under the regular provisions. It is calculated on “book profits” (profits shown in financial statements), which differ from taxable income.

Source: Indian Economy (N.C.E.R.T)