Consider the following statements regarding the Minimum Alternate Tax (MAT) in Indian tax regime.
1. MAT is calculated at 15% on the book profit or at the usual corporate rates, and whichever is lower is payable as tax.
2. Only domestic companies in India fall under this provision.
3. MAT is an important tool with which tax avoidance can be prevented.
Which of the statements given above is/are correct?​

Correct option is C

The correct answer is (C) Only 1 and 3

Explanation:

• Statement 1: MAT is calculated at 15% on the book profit as per the Companies Act, or at the usual corporate tax rates, whichever is lower. However, this statement has a slight inaccuracy: MAT is calculated at 15% on the book profit, but it is not compared with the usual corporate tax rates. MAT applies 15% on book profit directly.

• Statement 2: Only domestic companies in India are subject to MAT. This is incorrect because foreign companies doing business in India are also subject to MAT, as long as they have significant business operations in India and meet the criteria set by the law.

• Statement 3: MAT is an important tool for preventing tax avoidance. This is true, as MAT ensures that companies that show low or zero taxable income (by using exemptions, deductions, or other provisions) still contribute a minimum amount to the tax pool, thus reducing the possibility of tax evasion or avoidance.

Information Booster:

• MAT ensures that companies that show high book profits but report low taxable income still pay a minimum tax.

• The book profit is computed based on financial statements of the company, which are audited by independent auditors.

• Section 115JB of the Income Tax Act specifies the application of MAT for companies.

• MAT rate is 15% (plus applicable surcharge and cess).