Notes on DDT and MAT

7/25/2019 Notes on DDT and MAT

1/5

CA Pinky Agarwal Page 1

SECTION 115-O DIVIDEND DISTRIBUTION TAX

TAX ON DISTRIBUTED PROFITS OF DOMESTIC COMPANIES

The Domestic Company shall, in addition to the income tax chargeable in respect of its total income,

be liable to pay additional income tax on any amount declared, distributed or paid by such company

by way of dividend (whether interim or otherwise), whether out of current or accumulated profits.

Such dividend distribution tax shall be payable @ 15% plus surcharge @ 5% plus education cess @

2% plus SHES @ 1% of amount so declared, distributed or paid.

The amount to be distributed shall be reduced by

the amount of dividend, if any, received by the domestic company during the financial year, if

such dividend is received from its subsidiary;

the subsidiary has paid tax under this section on such dividend; and

the domestic company is not a subsidiary of any other company.

However, that the same amount of dividend shall not be taken into account for reduction more than

once.

the amount of dividend paid to any person for, or on behalf of, the New Pension System Trust

established on the 27th day of February, 2008 under the provisions of the Indian Trusts Act, 1882.

The principal officer of the domestic company and the company shall be liable to pay the tax on the

dividend distribution profit within 14 days from the date of declaration or distribution or payment of

any dividend, whichever is earlier.

The tax on the dividend distribution profit shall be payable whether or not the domestic company is

liable to pay income tax on its total income computed in accordance with the provision of this Act.

The tax on dividend distribution profit shall be treated as the final payment of the tax in respect of

the amount declared, distributed or paid as dividends and no further credit shall be claimed by the

company or by any other person in respect of the amount so paid.

No deduction shall be allowed to the shareholder under any provision of the Income tax Act, 1961 in

respect of any expenditure which he has incurred on collection or earning of the dividend (Sec. 14A).

No deduction shall be allowed to the company under any provision of the Income tax Act, 1961 in

respect of the dividend so paid or tax thereon.


2/5


The distributed profit on which tax is paid u/s 115-O shall be exempted in the hands of share holder

u/s 10(34).

The tax on distributed profits shall be payable by domestic company whether or not such profit is

distributed out of current year profit or accumulated profit.

Dividend received from a foreign company is not covered by Sec.115-O and shall not be exempted in

the hands of shareholders u/s 10(34). Such dividend is taxable in the hands of shareholder at the

normal tax rates.

Dividend on both preference shares and equity shares shall be considered.

SEC-115JB

Minimum Alternate Tax on companies was levied from the Assessment year 2001-02. Section 115JB

provides that if tax payable on total income is less than 18.5% of book profit, the tax payable under

this provision shall be 18.5% of book profit

The rate of tax from the current year on Book Profits u/s.115 JB will be 18.5%, plus applicable

surcharge and Education cess.(10%+2%+1%)

The new provision of section 115JB is a self-contained code. Sub-sec (1) lays down the manner in

which income-tax payable is to be computed.

Sub-sec (2) provides for computation of book profit.

Sub-sec (5) specifies that save as otherwise provided in this section, all other provisions of this Act

shall apply to every assessee, being a company mentioned in that section. In other words, except for

substitution of tax payable under the provision and the manner of computation of book profits, all

the provisions of the tax including the provision relating to charge, definitions, recoveries, payment,

assessment, etc., would apply in respect of the provisions of this section.

Computation of Book Profit

Book profit means the net profit as shown in the profit and loss account for the relevant previousyear as increased by any amount debited to the profit and loss account,

the amount of income-tax paid or payable,

the amounts carried to any reserves, [other than a reserve specified under section 33AC;] or


3/5


the amount set aside to provisions made for meeting liabilities, other than ascertained liabilities;

or

the amount by way of provision for losses of subsidiary companies; or

the amount of dividends paid or proposed incl. dividend distribution tax; or

the amount of expenditure relatable to any income to which section 10 applies(other than sec

10(38),sec11 and sec 12 ; or

the amount of depreciation ; or

Deferred tax ; or

Provision for diminution in the value of any asset; or

and as reduced by

the amount withdrawn from any reserve or provision(incld revaluation reserve)

the amount of income to which any of the provisions of section 10, other than sec10(38),sect11

and sec 12 apply, if any such amount is credited to the profit and loss account; or

the amount of depreciation (excluding the depreciation on account of revaluation of assets) or

the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books

of account.

Explanation .For the purposes of this clause,

(a) the loss shall not include depreciation;

(b) the provisions of this clause shall not apply if the amount of loss brought forward or

unabsorbed depreciation is nil; or]

Deferred tax

the amount of profits eligible for deduction under Section 80HHC, 8OHHE, 80HHF

the amount of profits of sick industrial company


4/5


As per Finance Bill, 2015, amendments have been made for the additions and deletions to net profit.

Additions to net profit:

1. the amount or amounts of expenditure relatable to, income, being share of the assessee in the

income of an association of persons or body of individuals, on which no income-tax is payable inaccordance with the provisions of section 86.

In simple words, assessee is not liable to pay MAT on share in the income of AOP/BOI on which no

income tax is payable u/s 86.

2. the amount or amounts of expenditure relatable to income from capital gains arising on

transactions in securities (other than short term capital gains arising on transactions on which

securities transaction tax is not chargeable), accruing or arising to an assessee being a Foreign

Institutional Investor which has invested in such securities in accordance with the regulations made

under the Securities and Exchange Board of India Act, 1992.

In Simple words, now FII is not liable to pay MAT on capital gain arising on transaction in securities,

however, they are liable to pay MAT on short term capital gain arising on transaction in securities on

which STT is not chargeable.

Deletion to net profit:

1. the amount of income, being the share of the assessee in the income of an association of persons or

body of individuals, on which no income-tax is payable in accordance with the provisions of section

86, if any such amount is credited to the profit and loss account

2. the amount of income from capital gains arising on transactions in securities (other than short term

capital gains arising on transactions on which securities transaction tax is not chargeable), accruing

or arising to an assessee being a Foreign Institutional Investor which has invested in such securities

in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992,

if any such amount is credited to the profit and loss account.


5/5


Procedure for Computation of MAT u/s 115JB

The provisions of section 115JB provide for working out the income-tax payable as MAT on a deeming

basis. The MAT tax liability under section 115JB can be worked out by undergoing the following steps:-

Compute the total income of the company (ignoring the provisions of u/s115JB).

Compute the income-tax payable on total income as per the current tax rate applicable for the

assessment year 2012-13.

Work out the Book Profit under the provisions of section 115JB.

Calculate 18.5 per cent of book profit (as per provisions of section 115JB).

Tax liability will be calculated before surcharge and cess.

MAT tax liability as worked out under (iv) above would be the tax payable if it is more than the

amount of tax worked out (ii) above. Now calculate the applicable surcharge and cess on the above

MAT Credit

If MAT is paid u/s 115JB its credit can be carried forward and utilized in ten assessment year

immediately succeeding the assessment year in which tax credit becomes allowable under sub-section

(1A) of section 115JAA.

Notes on DDT and MAT

Documents

Transcript of Notes on DDT and MAT