CBDT issues clarifications for MAT calculation

CBDT issued a list of 'Frequently Asked Questions' on the subject

Companies opting for Indian Accounting Standards (Ind-AS) may use marked-to-market (MTM) losses for the purpose of Minimum Alternate Tax (MAT) regarding financial instruments such as equity for the purpose of trading. 

MTM is the revaluing of assets are current prices. These companies need not do further adjustment for these losses in their profit and loss  (P&L) accounts, since these are allowed under the MAT provisions. The Central Board of Direct Taxes (CBDT) issued a list of ‘Frequently Asked Questions’ (FAQs) on the subject, to clarify doubts from companies relating to amendments in the MAT provisions to align these with Ind-AS. 

Explaining the FAQs, Hitesh Sawhney, partner, direct tax, with consultancy PwC, says for financial instruments whose fair value adjustments are recognised through P&L accounts, no further adjustment nee be made for the purpose of MAT.

He said investments in equity for the purpose of trading, or debt not held till maturity and where there is no surety of principal or interest recovery, would come under these instruments. 

Neeru Ahuja of consultancy Deloitte said: “Where MTM losses are recognised in the P&L account, such loss would be allowable for MAT computation. So, no adjustment is required.”

However, in a provision for reduction in value of assets other than these financial instruments, adjustments will have to be made. Explaining, Sawhney said if provisions for bad debts were made by a company, these will have to be added back to the profits for the purpose of MAT. 

However, adjustments relating to provision for doubtful debts will not be considered for the purpose of computation of the transition amount.

An EY note says, "There would be concerns due to the clarification on the exclusion of provisions for bad and doubtful debts from the 'transition amount', which may never, in the future, become deductible in computation of book profit."

In the case of dividends, one of the FAQs clarified that it would be recognised in the year in which it was declared and not when it accrued. Also, in the case of preference shares, dividend is usually paid as interest. For this, CBDT clarified that this would be recognised whether termed dividend or interest. 

Barring banks, insurance and non-banking financial companies, most companies were required to adopt Ind-AS from April 1, 2017. Unlisted companies of less than Rs 250 crore of net worth, are exempt.