Define the term 'Mat Credit' under section 115 JAA of the Income Tax Act. And also calculate the tax payable by the company in the assessment year 2017-18, if the book profits of a company in the previous year 2016-17 co

MAT Credit under section 115JAA: Where tax payable on books profits (18.5% of book profits) exceeds tax payable as per normal provisions viz. MAT exceeds Normal tax, then, such excess tax paid is allowed as credit under Section 115JAA to be set-off in subsequent years; such credit is called as MAT Credit. MAT Credit can be used only if normal tax is higher and even after allowing credit, tax payable cannot be less than MAT. Calculation of tax payable by the Company for the AY 2017-18 Particulars Amount (INR) Tax on Total Income @ 30.9% including cess (7.5 lakh @ 30.9%) 2,31,750 Tax on Book Profits @ 19.055% including cess (20 lakhs @ 19.055%) 3,81,100 Since tax on book profits exceeds normal tax, hence, (a) deemed total income = book profits i.e. 20,00,000 (b) tax payable = MAT 3,81,100 (c) excess tax paid i.e., Tax on Book Profits - Tax on Total Income as per normal provision of the Income Tax Act, 1961 = ₹3,81,100 - ₹2,31,750 = ₹1,49,350 would be allowed as MAT Credit 1,49,350 (d) The Tax Credit can be adjusted in 10 subsequent assessment year from the assessment year 2018-19.