Infrastructure companies and businesses operating in special economic zones are unclear whether to migrate to the new regime of lower corporate tax. There is confusion whether — and, to what extent — these companies can use the accumulated credit on account of minimum alternate tax (MAT) paid by them when their tax holiday comes to an end or when they choose to opt for the new, reduced tax regime.
While the ordinance enacting the lower tax does not ban companies from availing MAT credit, there is no clarity on how MAT credit will be allowed under the present law. The government, feel senior tax professionals, should clear the fog by amending the law.
This is a significant issue impacting hundreds of companies which are in a dilemma whether to switch over to the lower tax regime. It needs immediate clarification.Just because companies opting for lower tax are spared of MAT, it should not mean they cannot claim past MAT credit. This is because the section permitting MAT credit survives and computation mechanism.
The new tax ordinance has cut the corporate tax rate for existing companies to 22% (25.17% – including cess and surcharge) by inserting a new Section 115BAA. Existing companies have an option to avail this lower rate if they are willing to forego existing tax deductions.
Simultaneously, Section 115JB, dealing with MAT, has been amended to state that that MAT provi-sions shall not apply to a company which exercises the option to be governed under the lower tax regime provided in Section 115BAA. “There is some controversy on whether a company opting for the lower tax regime would lose the MAT credits which it may have accumulated in the past”.
Consider an infrastructure company which pays MAT in the year it makes a profit (which is within the tax holiday period). The total MAT paid during the tax holiday period is available as MAT credit to be adjusted against the regular tax liability at a later point. As per the law, this credit, say Rs 150 crore, can be used to lower the regular tax liability at the end of the tax holiday. Under the new law, the company may choose to migrate to the lower tax regime of 25.17% (including surcharge and cess). On earnings of Rs 500 crore, its normal tax liability works out to Rs 125.87 crores.
The question that arises is: how does the company go about in setting off the MAT credit to lower the tax outgo?