Q. Consider the following statements regarding “Minimum Alternate Tax (MAT)”:
1.It is a direct tax imposed on the zero tax companies.
2.It was first imposed in 1997–98.
Which of the statements given above is/are correct?
Answer: C
Notes:
Explanation: The Minimum Alternate Tax (MAT) is a direct tax imposed on the ‘zero tax’ companies at the rate of 18.5 per cent on their book profit. This was first imposed in 1997–98.
- Basically, income tax is paid as per the provisions of the Income Tax Act (IT Act), but companies calculate their profit (through profit and loss account) as per the provisions of the Companies Act.
- The IT Act allows several kinds of exemptions and other incentives from total income together with deductions on the gross income.
- Again, the rates of ‘depreciation’ under the Companies Act are higher than the IT Act.
- As a result of these exemptions, deductions and other incentives under IT Act together with higher depreciation under the Companies Act, companies show their taxable income either ‘nil’ or ‘negative’, and this way; the ‘zero tax’ companies emerge.
Source: Ramesh Singh
