14 August 2021
Rationalization of the MAT provisions to align for transfer pricing adjustments - CBDT notifies rules with a formula-based mechanism for computing MAT relief

As per the Minimum Alternate Tax (MAT) provisions under Section 115JB of the Income-tax Act, 1961 (the Act), the tax liability of a taxpayer would be higher of the (i) Tax liability of the taxpayer computed as per the normal provisions; or (ii) Tax computed @15%1 (plus surcharge and cess as applicable) under MAT.

The Finance Act, 2021, inserted Sub-section 115JB(2D) in the Act to provide relief in the computation of MAT, in respect of cases, where there is an increase in book profit of the previous year due to income of past year(s) included in the book profit on account of an Advance Pricing Agreement (APA) entered into by the taxpayer under Section 92CC of the Act or secondary adjustment required to be made under Section 92CE of the Act.

The taxpayer can make an application, in the prescribed format, to the tax authorities to recompute the book profit of the past year(s) and tax payable. The tax authorities should carry out such re-computation/rectification within the period of four years from the end of the financial year in which they receive such an application.

The Central Board of Direct Taxes (CBDT), by introducing Rule 10RB2 of the Income-tax Rules, 1962 (the Rules) has now prescribed the mechanism for the aggrieved taxpayers for computing the relief contained under Section 115JB(2D) of the Act. These rules may be called the Income-tax (23rd Amendment), Rules, 2021.


Procedure

The aggrieved taxpayer would be required to make an application in Form 3CEEA to claim the relief. The submission is electronic by simply uploading a signed printout of said Form in the manner specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be. The Form No.3CEEA shall be verified by the person authorized to verify the taxpayer's return of income under Section 140 of the Act.


Mechanism for the computation of the relief

The tax payable under Section 115JB(1) of the Act for the previous year shall be reduced by the following amount: (A - B) - (D - C), where  
MAT payable by the taxpayer for the previous year

A. Tax payable by the taxpayer under Section 115JB(1) of the Act on the book profit of the fiscal year, including the past income
The value shall be deemed zero, if there is no tax payable on the book profit of that previous year, including the past income.


B. Tax payable by the taxpayer Section 115JB(1) of the Act on the book profit of the fiscal year after reducing the book profit with the past income
The value shall be deemed zero, if there is no tax payable on the book profit of that previous year after reducing the book profit with the past income.
 
Aggregate of MAT payable by the taxpayer on the book profit of the past year(s)

C. Aggregate of tax payable by the taxpayer under Section 115JB(1) of the Act on the book profit of those past year(s) to which the past income belongs
For the purposes of calculation, if in any past year or years there is no tax payable on the book profit of that year or years, the tax payable for that year or years shall be deemed to be zero.


D. Aggregate of tax payable by the taxpayer under Section 115JB(1) of the Act on the book profit of past year(s), referred to in item C, after increasing the book profit with the relevant past income of such year(s)
For the purposes of calculation, if in any past year or years there is no tax payable on the book profit of that year or years after increasing the book profit with the relevant past income of such year or years, the tax payable for that year or years shall be deemed to be zero.

Points for consideration
  • If there is no MAT relief available under Rule 10RB of the Rules [i.e., the value of (A-B) – (D-C) is negative], the value of the formula will be considered as zero.
  • Past income has been defined as the amount of income of past year(s) included in the book profit of the previous year on account of an APA or secondary adjustment required to be made under the Act.
  • The tax credit previously allowed to the taxpayer under Section 115JAA of the Act shall be reduced by the MAT relief provided above under Rule 10RB of the Rules.
 
1. for the previous year relevant to the assessment year commencing on or after the 1st day of April, 2020
2. Vide notification No. 92/2021/F. No.370142/21/2021-TPL (Part) dated 10 August 2021. The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section-3, Subsection (ii) vide number S.O. 969 (E), dated the 26 March, 1962 and last amended vide notification number G.S.R.545 (E), dated, 9 August,2021.
Our Comments
The Finance Minister, Nirmala Sitharaman, while passing the Finance Bill 2021, emphasized achieving a reduction in compliance and improving ease of doing business. The proclamation made by the CBDT is in continuation with the FM's view and would address double taxation by ensuring that the MAT payable in the previous year on past income does not exceed the MAT payable on such income, if it were included in the book profit of individual past year(s).
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