FM extends MAT to individuals
Finance minister Pranab Mukherjee on Friday extended the levy of minimum alternate tax to individuals. HT reports.india Updated: Mar 17, 2012 01:30 IST
Finance minister Pranab Mukherjee on Friday extended the levy of minimum alternate tax to individuals.This will bring a host of organisations and individuals such as partnerships firms, sole proprietorship and association of persons under the tax net.
MAT was introduced in 1997 to address inequity in taxation of Indian corporations. Many companies, despite making book profits as per their profit and loss account, were hardly paying any tax because of a large number of exemptions.
Such exemptions, deductions, and other incentives under the Income tax Act such as liberal rates of depreciation had led to the emergence of “zero tax” companies, which inspite of having high book profit are able to reduce their taxable income to nil.
MAT was introduced to address such inequities.
A higher MAT is one of the ways through which government might be looking at increasing the effective rate of corporate taxation.
At present the average effective tax rate for corporations is 24.10%, which is substantially lower than the statutory tax rate of 33%.
Importantly, the effective tax rate for private companies is at 24.61 % as compared to government-owned companies that paid an effective tax rate of 22.28%.
“Under the existing provisions of the Income Tax Act, MAT and AMT are levied on companies and limited liability partnerships respectively. However, no such tax is levied on the other form of business organisations such as partnership firms, sole proprietorship and association of persons,” said the finance ministry’s memorandum on the finance bill.
Under the new provisions, such individuals will have to pay “alternate minimum tax” computed at 18.5% of their adjusted total income.
“Credit for tax paid by a person on account of AMT shall be allowed to the extent of the excess of the AMT paid over the regular income tax,” the memorandum said.
First Published: Mar 17, 2012 00:17 IST