The government on Monday proposed to raise minimum alternate tax (MAT) to 20 per cent on book profits but diluted the earlier proposal to impose it on gross assets that had drawn protests from firms.
MAT was introduced in fiscal 1998 to address the inequity. Many companies, despite making book profits as per their profit and loss account, were hardly paying any tax because income computed as per provisions of the Income-Tax Act, was either nil, or insignificant.
Besides exemptions, there are several deductions permitted from gross total income. The result of such exemptions, deductions, and other incentives under the Act in the form of liberal rates of depreciation is the emergence of Zero tax companies which in spite of having high book profit are able to reduce their taxable income to nil.
Analysts said that special economic zone developers and units operating there are also included under the MAT regime.
"Under DTC, all the corporate taxpayers will now be liable to MAT including those availing the investment-linked incentives and profit-linked incentives," said Sunil Shah, Partner Deloitte Haskins & Sells.
"The government has removed the concept of gross asset tax and has rounded off the MAT rate to 20 per cent," Ernst & Young Tax Partner Vishal Malhotra said.