NEW DELHI : The Central Board of Direct Taxes (CBDT) on Wednesday said the benefit of minimum alternative tax (MAT) credit cannot be availed of by companies that opt to pay the tax rate recently lowered by the government to 22%.

MAT is the minimum tax to be paid by companies that keep their taxable profit low by using tax breaks.

According to an ordinance promulgated on 20 September, manufacturing companies not availing of tax benefits can now opt for a 22% corporate tax rate. New manufacturing companies that register and start production between 1 October and March 2023 can avail of an even lower tax rate of 15%. Finance minister Nirmala Sitharaman also announced a reduction in MAT from 18.5% to 15%.

At present, business income is taxed at 30%, exclusive of cess and surcharge, other than in the case of companies with sales of up to 400 crore and new manufacturing companies that are taxed at 25%. Now, the effective tax rate, including cess and surcharges, for the existing companies comes down from 34.94% to 25.17%, while for new companies it falls from 29.12% to 17.01%.

The low tax rates of 22% and 15% are available to companies only if they do not avail of any tax incentives, and therefore there is little chance of them lowering their tax outgo further using incentives.

Experts said there were different interpretations pertaining to some aspects in the ordinance and a clarification by the CBDT will give much-needed clarity to companies as some of them believed credit can be claimed even after opting for lower taxes.

“The circular clarifies an important aspect regarding the decision to switch from the existing regime to the new regime. The issue was whether at the time of the switch a one-time write-off of MAT credit would be triggered or not. The circular now confirms that it will," Rohinton Sidhwa, partner, Deloitte India said.

Sidhwa further said this could be a huge cost to some companies which will now consider continuing under the old regime for the time being.

“This circular denying MAT credit at present may not be legally correct as per provision stated in the ordinance. However, a legal challenge to circular will not be sustainable as the government has to introduce and get a Bill in parliament passed to replace this ordinance," said Ved Jain, former president of the Institute of Chartered Accountants of India. While introducing the Bill in the winter session of Parliament, the government will have to amend the language, and also add specific provisions in the Bill denying MAT credit if a company exercises new concessional rate option of 22%, he explained.

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