Govt seeks comments on MAT report

Government has sought public comments on changes suggested by a committee for computation of book profit of companies for levy of minimum alternate tax (MAT).
"The comments may be submitted by May 10, 2016," Finance Ministry said.
The government in June last year constitued a Committee under retired Indian Revenue Service officer M P Lohia, to suggest the framework for computation of book profit for the purposes of levy of MAT for Indian Accounting Standards (Ind AS) compliant companies.
Indian companies are all set to switch to a new Ind-AS from 2016-17.
The committee was formed to look at ways to resolve the differences, arising in MAT computation when a company adopts the Ind-AS.

The panel said no adjustments are required to made to the net profits of Ind AS-compliant companies after considering the implicit relation between the distributable profits which is available for payment of dividend.

"The net profits under Ind AS may include a sizeable amount of notional/unrealised gains or losses. In the event that the MCA prescribes any further adjustments to the current year profits for computation of distributable profits, the requirement for any additional adjustments to the book profit under section 115JB may be examined," the panel said.
While the net other comprehensive income includes certain items that will permanently be recorded in reserves and hence never be reclassified to the statement of profit and loss account included in the computation of book profits, the Committee recommended that these items should be included in book profits for MAT purposes at an appropriate point of time.

As an illustration, it said gains and losses from investments in equity instruments designated at fair value through other comprehensive income should be included in book profits at the time of realisation.
It further said those adjustments recorded in reserves and which would subsequently be reclassified to the profit and loss account, should be included in book profits in the year in which these are classified to the profit and loss account.
Commenting on the report, Rakesh Nangia, Managing Partner, Nangia & Co said, "Due to increased use of fair value accounting under Ind-AS, unrealised gains and losses will get recognised in income statement. Since, this will potentially increase the reported amount of accounting profits, it could also cause higher MAT outflows.

"In view of the same and considering the implicit relation between distributable profits and the tax base for levying MAT, the committee has rightly recommended that no further adjustments are required to be made to net profits in respect of unrealised / notional gain and loss, other than those already mention under section 115JB.