The upcoming budget is likely to fulfill many promises made by the ruling government. One of them is relief in tax rate by 25 percent by the year 2019. Previously, Companies had enjoyed a reduced corporation tax from 35% to 29% and now the upcoming budget is likely to suggest an elimination of MAT (Minimum Alternate Tax). In the upcoming Union Budget, this will bring plethora of relief for the companies coming under Minimum Alternate Tax and are start-ups. As per the opinions and previous month presentation of finance ministry, the ongoing tax framework does not need an extra section as MAT (Minimum Alternate Tax). MAT has been considered as a redundant levy and they considering it to totally exempt from the tax circle.
First introduced in 1987 for the purpose of catching the tax escapers even after earning a substantial but below the tax bar income. After scrapping the norm in that year, it was reintroduced in 1997 with a fixed MAT rate of 12.5% of the total book profit.
The decision of eliminating the MAT has been considered after the issue raised in the year 2014. The foreign venture operating in India were sent an intimation on paying MAT on their total capital obtains. But, then government had eliminated the provision for foreign companies which are operating temporarily in India.
With decreasing the corporation tax, the government is taking along the work of putting a halt on the tax holidays and tax rebates for the companies. Supposedly, the elimination step of MAT will be undertaken under the shades of the attempt of reducing the gap between corporation tax and MAT.
This release of MAT from the taxation framework has been proposed keeping in view the start-up companies, which may face trail of losses before withdrawing their first profit. In those cases, MAT may become an inevitable burden for those organisations. The longer the gestation period will be, the lesser amount of profit they may savour.
The provision include one more suggestion of reduction of MAT to 7.5 per cent from 18.5 per cent. Unlike the earlier case, MAT is alive only for domestic companies and not for foreign ventures.