Form 29B may be a form employed by Companies to disclose book profits to the revenue enhancement Department. it’s not as simple as it seems. However, we’d like to know the full concept regarding the aim of Form 29B. Let’s start with the fundamentals.
The company’s books of accounts are prepared as per the businesses Act, and tax payable is calculated as per the revenue enhancement Act guidelines. Moreover, the profits shown within the Profit & Loss statement are thought of as book profits – the income of the corporate. Many of the businesses had book profits; however, they reported nil tax as per the Income-tax provisions. We call such companies “zero-tax” companies. they’d substantial book profits but claimed deductions & exemptions under the IT Act. This way, they were ready to reduce their liabilities to zero tax.
MAT – what’s the Minimum Alternate Tax?
Section 115JB of the Finance Act 1987 was enacted to bring zero-tax firms under the IT act’s jurisdiction. As per Section 115JB, Companies would force to pay a Minimum Alternate Tax (MAT) of 18.5%. However, this implies the book profits are subject to a tax of 18.5%.
Let’s see an example. The book profits of the corporate before claiming any exemptions (depreciation and others) under the IT Act is Rs. 10 lakhs. The MAT required to be paid is 18.5% of 10 lakhs, which is Rs. 185000/-
Companies into life assurance businesses are exempted from MAT.
More about Form 29B
All companies that constitute the purview of Section 115JB must file this manner 29B report. The company’s accountant should fill it. The statement confirms that the book profit is following Section 115JB. the outline should be obtained before filing the taxation. you wish to submit the report electronically.
The format of the shape 29B is straightforward. It contains the subsequent information:
- Name and address of the corporate
- Pan card number
- Nature of business
- Assessment year
- Amount of the Book profit
What is MAT Credit?
All companies must file the report in Form 29B, per Section 115JB. Basis of the story, the corporate must pay the Minimum Alternate Tax. Indeed the corporate can avail of MAT credit basis the tax paid. The MAT amount paid in one year are often used as a “credit” within the subsequent years. However, there may be a difference within the amount paid between the tax paid under MAT and also the Tax Payable under Regular Tax. the surplus MAT amount paid is thought as MAT credit. Therefore, this credit is carried forward for 15 financial years.
To simplify, let’s study an example of MAT carry over mechanism.
The MAT paid in excess in the first year is Rs. 2 lakhs. Year 2 – The surplus mat is Rs.1 lakh. In 3rd year the surplus tax paid is Rs. 4 lakhs. Hence this company at the tip of 4 financial years has the whole MAT credit of Rs. 7 lakhs.
Now within the 4th year, the corporate pays Rs. 5 lakhs as MAT; however, the particular tax to be paid is Rs. 9 lakhs. However, during this scenario, the corporate can use the MAT credit of Rs. 4 lakhs from the overall credit amount available. therefore the company within the 4th year saves a considerable amount of latest spending. Now within the next year further, the MAT amount is a smaller amount as compared to the particular payable amount. Here too, the corporate makes use of the balance of the MAT credit available to the extent of Rs. 1.50,000.
Purpose of Form29B
The company must calculate the tax amount under MAT furthermore because the tax to be payable as per standard tax provision. Indeed the corporate has to pay whichever amount is more. So in case, the MAT amount is relatively higher i.e. over the regular tax payable amount. the corporate has to pay MAT amount.This figure is based on the book profit reported on Form 29B.The company’s controller audits this report. However, Form 29B becomes a critical report back to claim MAT credit. Hence filing of Form 29B is mandatory as per IT Act and is useful for the businesses to say the MAT credit in addition.
Every company that incorporates a book profit must pay a Minimum Alternate Tax. The book profit amount is disclosed within the audited report of the corporate under Form 29B. However, it assumes to be the income of the corporate for tax calculation purposes. Therefore, the premise of this MAT is calculated and paid. Form 29B is important to say MAT credit in subsequent years. Moreover, Form 29B is of utmost importance for the corporate.