22.1 Section 115JB provides for levy of MAT on book profits. Book Profits refers to profit disclosed in Statement of Profit and Loss Account prepared in accordance with the provisions of Companies Act, 2013. Companies to whom Ind-AS apply are required to bifurcate their Statement of Profit and Loss into 2 parts (Ind-AS – 1 Presentation of Financial Statements):
(i) Net profit for the year; and
(ii) Net Other Comprehensive Income (OCI)
Ind-AS promotes the concept of Fair Value Accounting. This means that all the assets and liabilities shall be valued at fair value. The present accounting system followed by companies is based on historical cost i.e., assets are valued at cost. This would require restatement of assets.
OCI includes financial impact arising from reinstatement of underlying assets in accordance with the principle of Fair Value Accounting. This results into “appreciation” or “depreciation” in the value of assets (i.e., unrealised or notional gain/loss) which needs to be accounted. Due to the concept of OCIs profits arise at two different stages– i) Profit before tax and before OCI adjustment and ii) Profit before tax but after OCI adjustment.
22.2 A concern was raised that whether OCI should be included for computing the book profits? CBDT had constituted a committee to address this concern. In consultation with Ministry of Corporate Affairs (MCA) the committee made consultations for addressing this issue. The recommendations of the committee were accepted and amendments were made for computation of book profits in different cases.
22.3 Briefly, the amendments provide that book profit for MAT purposes would include the appreciation/depreciation as per OCI. However, there are certain exceptions for items which would have an impact only on their realisation or disposal.
Further, in the first year of adoption of Ind-AS, companies would be required to adjust the opening book value of assets and liabilities. This would result in a huge adjustment to be made through OCI which would also impact the MAT computation. To defray the huge increase in MAT, it has been provided that the transition adjustments as on the first day of the reporting under Ind-AS must be considered equally over 5 years from the first year.
22.4 It is advisable that companies which have to adopt Ind-AS should take proper advice on applicability and impact of MAT on their tax liability.