Contents

Background. 3

MAT-Ind AS Committee. 3

Report by CBDT\’s MAT Ind AS Committee. 4

Recommendations. 4

Realised Profits for purposes of distribution of dividend. 5

Transition Provisions. 5

 

 

 

Background

The Ministry of Corporate Affairs (MCA), through its notification dated 16 February 2015, issued a road map for implementation of Ind AS by companies other than banking companies, insurance companies and Non-Banking Financial Companies (NBFCs) in two phases i.e. for accounting periods commencing on 1 April 2016 and 1 April 2017 based on certain prescribed thresholds.

Subsequently, on 18 January 2016 and 30 March 2016, the MCA notified Ind AS road map for banks, insurers and NBFCs.

While adopting the Ind AS, one of the key questions was how this change in financial reporting would impact taxable income.

The key question in the minds of all stakeholders has been whether such items recorded in OCI and fair value gains/losses should be considered while determining MAT profits/liabilities?

On 31 March 2015, the Ministry of Finance (MOF) issued 10 Income Computation and Disclosure Standards (ICDS), operationalising a new framework for computation of taxable income by all assesses (in relation to their income under the heads ‘Profits and Gains of Business or Profession’ and ‘Income from Other Sources’).

MAT-Ind AS Committee

Therefore, on 8 June 2015, the Central Board of Direct Taxes (CBDT) formed the MAT-Ind AS Committee (the Committee) to suggest a framework for computation of book profit for the purpose of levy of MAT under Section 115JB of the Income-tax Act, 1961 (the IT Act) for Ind AS compliant companies in the year of adoption and thereafter.

Report by CBDT\’s MAT Ind AS Committee

On 18 March 2016, the Committee formed by the CBDT issued a report (the report) proposing a framework for computation of book profit for the purposes of levy of MAT under Section 115JB of the IT Act for Ind AS compliant companies in the year of adoption and thereafter.

The CBDT\’s MAT Ind AS Committee has suggested a much awaited framework for computation of book profit for levy of Minimum Alternate Tax (MAT) for companies adopting Ind AS beginning April 1, 2016. This was needed due to the increased use of fair value accounting and an entire new concept of other comprehensive income (OCI) under Ind AS, where certain items of income/expense are not recorded in the profit or loss but as part of OCI in equity.

Recommendations

The recommendations are

1. Starting point for determining MAT liabilities will be accounting profit excluding items recognised in OCI.
2. Items such as re-measurement of defined benefit obligations though recognized in OCI will be considered for MAT purposes each year as they arise (similar to current practice).
3. Other items in OCI such as revaluation changes on equity (IndAS 16 and IndAS 38), investments (Ind AS 109) and fixed assets, will be considered for MAT purposes when realized. However re-measurements of defined benefit plans (Ind AS 109) to be included in book profits) every year as thee-measurements of gains and losses arise

Accordingly, this will defer MAT liabilities to the period when gains are realised.

Realised Profits for purposes of distribution of dividend

The report also rightly recognizes the linkage between the concept of \”realised profits\” for purpose of distribution of dividend and determination of MAT liabilities, however it appears to not have excluded items such as unrealised fair value gains on financial instruments recognised in profit or loss for determining MAT liabilities.

Based on the inputs from the MCA that current year profit s (excluding net other comprehensive income) will be available for distribution as dividends  and considering the implicit relation between the distributable profits which is available for payment of dividend under the Companies Act and the tax base for levying AT no further adjustments are required to be made to the net profits (excluding net other comprehensive income) of Ind AS compliant companies, other than those already specified under section 115JB of the Act

Transition Provisions

The report also includes transition provisions requiring certain adjustments on account of first time adoption of Ind AS (which will be accounted in equity) to be included for the purpose of MAT calculation in the first year of adoption – this could result in an one-time impact on companies\’ MAT liabilities in the year of transition

Detailed Report can be accessed at http://www.incometaxindia.gov.in/news/mat-indas-committee-report-28-04-2016.pdf