Confusion around eligibility for lower MAT, clarity sought

New Delhi, Oct 21 : Even after a month of the government announcing a slash in corporate tax through an ordinance, confusion remains around the definition of manufacturer and business activities that would qualify for concessional minimum alternate tax (MAT) of 15 per cent.

Tax experts said that while the definition of manufacturer and other key terms are in the Income Tax Act but the government needs to clarify if the same would apply to companies while claiming for lower MAT.

“There are certain issues that have come up. The government has not defined what is manufacturing. It is not clear if activities like computer (software) development will be considered manufacturing. If someone gets manufacturing done by another company then who would qualify for lower tax,” said Rahul Garg, Senior Partner (Tax & Regulatory), PwC India.

Many experts said that these are normal questions and generally arise whenever there is a tax provision related to a business activity. They said that the definitions of manufacturer is there in the tax laws but it has to be determined if the same would serve the purpose for the lower MAT eligibility.

“The issue remains relevant and the scope of the terms like manufacturing or manufacturer needs to be clarified,” an executive said.

Rajat Mohan, Senior Partner, AMRG & Associates said that companies tend to interpret law the way it benefits them and hence government must come out with a clear definition to avoid litigation at a later stage.

Finance Minister Nirmala Sitharaman had on September 20 announced to slash corporate tax to 22 percent from 30 per cent now and also reduced MAT to 15 per cent for companies putting fresh capital into manufacturing. Following certain confusion around the eligibility for availing MAT credit, the Finance Ministry clarified that companies opting to pay for lower tax rate of 22 per cent would not be allowed to avail the MAT credit.

As per the ordinance providing relief to India Inc, companies making fresh investment in manufacturing would get to pay lower tax of 15 per cent provided they are incorporated on or after October 1, 2019.

“This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before 31st March, 2023,” the Ministry had said.


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