The Central Board of Direct Taxes (CBDT) vide Circular no. 24/2017 dated 25th July, 2017 issued a clarification by way of 14 FAQ’s with respect to determination of book profit for computing Minimum Alternate Tax (MAT) liability under section 115JB of the Income-tax Act, 1961 (Act) for INDAS compliant companies.
Following are the few important clarifications:
- The CBDT clarifies that the starting point for computing the of book profits under section 115JB of the Act for an Ind AS complaint company would be Profit / Loss before Other Comprehensive Income (OCI).
- First Time Adoption adjustments as of March 31, 2016 (i.e. the start of business on April 1 , 2016 or equivalently, close of business on March 31, 2016) will be considered for computation of MAT liability for FY 2016-17 (AY 2017-18) and thereafter. Therefore, the convergence date has been clarified to be March 31, 2016
Where revaluation/ fair value adjustments have been made to items of Property, Plant & Equipment (PPE) under INDAS, as per section 115JB of the Act, the bookprofit of the previous year in which the items of PPE are retired, disposed or realised shall be increased or decreased, as the case may be, by the revaluation amount. Such revaluation amount should be the amount after the adjustment of depreciation on such revaluation amount.
4. Adjustment for proposed dividend (including DDT) shall not form part of transition amount. Similarly, any deferred tax adjustments recorded on the transition date shall be ignored for the purpose of computing transition amount.
5. Items such as equity component of financial instruments like NCD’s, Interest free loan etc. would be included in the Transition Amount.
6. MTM losses on account of fair value adjustments of financial Instruments recognised through profit and loss will be allowed as a deduction.
7. Investment in Preference shares is considered as liability and the corresponding dividend expense is debited to profit/loss account as interest cost under INDAS. It has been clarified that profit/transition amount shall be increased by dividend/interest on preference shares whether presented as dividend or interest.
8. For assessment year 2017-2018, the deduction of lower of depreciation or losses shall be allowed based on the position as on 31 March 2016. For the subsequent periods, the position as per books of account drawn as per Ind AS shall be considered.
9. The Capital Reserves or Securities Premium existing as on the convergence date as per the erstwhile Indian GAAP which are reclassified to Retained Earnings/ Other Reserves under Ind AS and vice versa, shall not be considered for the purposes of Transition Amount.
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