Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

MAT liability on Indian firms may reduce on switching to IndAS

A government panel has recommended lowering computation of book profit for firms complaint with the new Indian Accounting Standards

New Delhi: The minimum alternate tax (MAT) liability on Indian companies may come down for their first time adoption of new accounting standard, IndAS, with a government panel recommending lowering computation of book profit.

The government in June last year constituted a committee under retired Indian Revenue Service (IRS) officer M.P. Lohia to suggest the framework for computation of book profit for the purposes of levy of MAT for Indian Accounting Standards (IndAS) compliant companies.

Indian companies are all set to switch to a new IndAS from 2016-17.

The committee was formed to look at ways to resolve the differences, arising in MAT computation when a company adopts IndAS. The MAT-IndAS committee has reviewed the suggestions and comments of the stakeholders on the interim report regarding framework for computing book profit for IndAS compliant companies on first-time adoption.

The committee has suggested that in respect of revaluation of fixed assets and depreciation, any impact of revaluation on first-time adoption shall be ignored for calculating MAT.

In respect of leases, the retained earning adjustment is recommended to be included in the book profit over a period of three years of the first-time adoption of IndAS.

In respect of investments, the retained earning adjustment is recommended to be included in the book profit over a period of three years of the first-time adoption of IndAS. According to Nangia and Co. partner Vikas Gupta, the recommendations are a favourable step considered by the committee and it shall have a positive impact on stakeholders as this reduces their MAT tax liability on first time adoption of IndAS.

“The committee has completely dispensed with MAT liability on revaluation of fixed assets, which is a welcome step and in other cases, the liability has been spread over a period of three years starting from the year of the first time adoption of IndAS," Gupta said.

The tax department has invited stakeholder comments on the recommendations by 20 August.

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