Opting for new tax structure: No MAT credit, additional depreciation benefits

“It may be noted that as the provisions of the section 115JB relating to MAT itself shall not be applicable to the domestic company which exercises option under section 115BAA, it is hereby clarified that the tax credit of MAT paid by the domestic company which exercises option under section 115BAA, it is hereby clarified that the tax credit shall not be available consequent to exercising of such option,” the CBDT circular said.

On September 20, the Centre announced cuts in tax rates for domestic firms to 22 per cent and for new domestic manufacturing firms to 15 per cent. It was announced that firms that chose to continue with pre-amended tax rates would see their MAT reduce to 15 per cent from 18.5 per cent. The new effective tax rate, inclusive of surcharge and cess for domestic companies, is 25.17 per cent and for new domestic manufacturing companies is 17.01 per cent.

Earlier, the tax rate for companies with annual sales over Rs 400 crore was 30 per cent (exclusive of surcharge and cess).

The CBDT circular stated that “as there is no time line within which the option under section 115BAA can be exercised, it may be noted that a domestic company” having MAT credit and brought forward losses on account of additional depreciation may, if it so desires, exercise the option after utilizing MAT credit/set off of losses so accumulated.

Tax experts said not allowing MAT credit at the time of transition was perhaps done to minimise the cost to the exchequer. In 2017-18, companies had claimed MAT credits worth Rs 15,365 crore, according to Budget documents.

Rohinton Sidhwa, partner, Deloitte India, said, “The issue was whether at the time of the switch a one-time write-off of MAT credit would be triggered or not. The circular now confirms that it will. This could be a huge cost to some companies who will now perhaps consider continuing under the old regime for the time being. This was perhaps done to minimize the costs to the exchequer for the transition.” Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP said, “This is a welcome clarification on the stand of the government on denial of accumulated MAT credits. However, this is the view of the department and since the section related to carry forward of MAT credit is not amended, this may result in litigation. It’s important to note that circulars are not binding on taxpayers but are binding on tax department”.