What is the applicable Minimum Alternate Tax (MAT) Rate for AY 2020-21

what-is-the-applicable-minimum-alternate-tax-mat-rate-for-ay-2020-21

The Minimum Alternate Tax or MAT rate for the AY 2020-21 (or FY 2019-20) has undergone changed for several times which has created confusion among the mind of every taxpayer about the correct applicable rate of MAT for AY 2020-21.

In September 2019, the Finance Minister Smt. Nirmala Sitaraman had announced several relief measures for the Corporates or domestic companies. For this purpose, an Ordinance - namely, Taxation Laws (Amendment) Ordinance, 2019 was promulgated to amend certain provisions of the Income Tax Act, 1961.

Prior to the promulgation of the Ordinance, section 115JB prescribed for 18.5 per cent rate of tax on book profit for the AY 2020-21.

The promulgated Ordinance reduced the MAT rate of tax for AY 2020-21 to 15 per cent but did not amend section 115JAA related to MAT credit. Hence, CBDT issued a Circular No 29/2019 dated 02.10.2019 to clarify that a domestic company which availed the benefit of the reduced tax rate by using the option under section 115BAA shall not be entitled to avail the brought forward MAT credit. This was later enshrined into law when the Taxation Laws (Amendment) Act, 2019 was enacted.

The Ordinance has introduced a new section 115BAA in the Income Tax Act, 1961 to provide for a lower or concessional rate of corporate tax of 25 per cent for a domestic company irrespective of any turnover limit without allowing certain exemptions and deductions.

Section 115JB was amended to provide that a domestic company opting section 115BAA are not required to pay MAT. Hence, such companies are exempt from MAT provisions.

Section 115JB was further amended to provide that if a domestic company does not opt for section 115BAA then it can continue with the old or normal rate of tax and MAT provisions shall be applicable to those domestic companies.

However, the rate of income-tax under section 115JB shall be reduced rate of 15 percent instead of 18.5 per cent with effect from assessment year commencing on or after the 1st day of April, 2020. It means the rate of MAT is reduced to 15 percent from the AY 2020-21 itself.

However, when the Taxation Laws (Amendment) Bill, 2019 was tabled in the Parliament for approval of the Ordinance, the expression of the provision related to the applicability of the commencement date for reduced MAT rate was modified and the ‘assessment year 2020-21’ is amended to ‘previous year’. It means, as per the Bill, the reduced rate of 15 per cent for MAT is applicable from AY 2021-22. The Taxation Laws (Amendment) Bill, 2019 proposed to insert a proviso to section 115JB(1) of the Act that the rate shall be reduced from 18.5% to 15% from previous year commencing on or after April 1, 2020. Hence, the Bill had proposed to defer the applicability of this provision by one year.

However, there was no change in section 115BAA. Section 115BAA had been made applicable for the assessment year beginning on or after 01.04.2020. This created an inconsistency between the provisions of Section 115JB of the Act and the new tax regime of Section 115BAA.

Thereafter, again when the Bill was finally enacted as Taxation Laws (Amendment) Act, 2019 on 12-12-2019, section 115JB was once again amended and the original provision as contained in the Ordinance was restored.

Thus, the rate of tax for Minimum Alternate Tax (MAT) for the AY 2020-21 is finally provided as 15 per cent.

Finally, the position of the law is that if a domestic company opts to pay tax under section 115BAA, then the provision of Section 115JB of the Act does not apply. But when the company does not opt to pay tax under section 115BAA, then the MAT rate shall be 15% for the assessment year 2020-21.

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