All about Form 29B under the Income-Tax Act, 1961

Last Updated at: January 14, 2020
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All about Form 29B under the Income-Tax Act, 1961

What is Form 29B?

Form 29B is a form used by Companies to disclose book profits to the Income Tax Department. It is not as simple as it seems. However, we need to understand the whole concept regarding the purpose of Form 29B. Let’s start with the basics.

Zero-Tax Company 

The company’s books of accounts are prepared as per the Companies Act, and tax payable is calculated as per the Income Tax Act guidelines. Moreover, the profits shown in the Profit & Loss statement is known as book profits – the income of the company. Many of the companies had book profits; however, they reported nil tax as per the Income-tax provisions. We call such companies as “zero-tax” companies. They had substantial book profits but claimed deductions & exemptions under the IT Act. This way, they were able to reduce their tax liability to zero tax.

MAT – What is Minimum Alternate Tax?

To bring the zero-tax companies under the IT act purview, Section 115JB was introduced under The Finance Act 1987. As per Section 115JB, Companies will require to pay a Minimum Alternate Tax (MAT) of 18.5%. However, this means the book profits are subject to a tax of 18.5%.

Let’s see an example. The book profits of the company before claiming any exemptions (depreciation and others) under the IT Act is Rs. 10 lakhs. The MAT required to be paid will be 18.5% of 10 lakhs, which is Rs. 185000/-

Companies into Life Insurance businesses are exempted from MAT.

Get free legal advice now

More about Form 29B 

All companies that fall under the purview of Section 115JB has to file this Form 29B report. The company’s Chartered Accountant should fill it. Indeed the statement certifies that the book profit is per Section 115JB. The description should be obtained before filing the Income Tax. You need to submit the report electronically.

The format of the Form 29B is simple. It contains the following information:

  • Name and address of the Company
  • Pan card number
  • Nature of business
  • Assessment year
  • Amount of the Book profit

What is MAT Credit?

All companies must file the report in Form 29B, according to Section 115JB. Basis of the story, the company needs to pay the Minimum Alternate Tax. Indeed the company can avail of MAT credit basis the tax paid. The MAT amount paid in one year can be used as a “credit” in the subsequent years. However, there could be a difference in the amount paid between the tax paid under MAT and the Tax Payable under Regular Tax. The excess MAT amount paid is known as MAT credit. Therefore, this credit can be carried forward for 15 financial years.

To simplify, let’s look at an example of MAT carry forward mechanism.

1st year the MAT paid in excess is Rs. 2 lakhs. Year 2 – Mat paid in excess is Rs. 1 lakh. In 3rd year the excess tax paid is Rs. 4 lakhs. Hence this company at the end of 4 financial years has the total MAT credit of Rs. 7 lakhs.

Now in the 4th year, the company pays Rs. 5 lakhs as MAT; however, the actual tax to be paid is Rs. 9 lakhs. However, in this scenario, the company can use the MAT credit of Rs. 4 lakhs from the total credit amount available. So the company in the 4th year saves a substantial amount of new spending. Now in the next year as well, the MAT amount is less as compared to the actual payable amount. Here too, the company makes use of the balance of the MAT credit available to the extent of Rs. 1.50,000.

Check out this blog: Section 44ADA Of Income Tax Act – Presumption Taxation Scheme

Purpose of Form29B 

The company needs to calculate the tax amount under MAT as well as the tax to be payable as per standard tax provision. Indeed the company needs to pay whichever amount is more. So in case, the MAT amount is comparatively higher i.e. more than the regular tax payable amount. The company needs to pay MAT amount. This amount is calculated basis the book profit mentioned on Form29B. The company’s Chartered Accountant audits this report. However, Form 29B becomes a critical report to claim MAT credit. Hence filing of Form 29B is mandatory as per IT Act and is beneficial for the companies to claim the MAT credit as well.

Conclusion

Every company that has a book profit needs to pay Minimum Alternate Tax. The book profit amount is disclosed in the audited report of the Company under Form 29B. However, it assumes to be the income of the company for tax calculation purposes. Therefore, the basis of this MAT is calculated and paid. Form 29B is necessary to claim MAT credit in subsequent years. Moreover, Form 29B is of utmost importance for the company.

 

All about Form 29B under the Income-Tax Act, 1961

933

What is Form 29B?

Form 29B is a form used by Companies to disclose book profits to the Income Tax Department. It is not as simple as it seems. However, we need to understand the whole concept regarding the purpose of Form 29B. Let’s start with the basics.

Zero-Tax Company 

The company’s books of accounts are prepared as per the Companies Act, and tax payable is calculated as per the Income Tax Act guidelines. Moreover, the profits shown in the Profit & Loss statement is known as book profits – the income of the company. Many of the companies had book profits; however, they reported nil tax as per the Income-tax provisions. We call such companies as “zero-tax” companies. They had substantial book profits but claimed deductions & exemptions under the IT Act. This way, they were able to reduce their tax liability to zero tax.

MAT – What is Minimum Alternate Tax?

To bring the zero-tax companies under the IT act purview, Section 115JB was introduced under The Finance Act 1987. As per Section 115JB, Companies will require to pay a Minimum Alternate Tax (MAT) of 18.5%. However, this means the book profits are subject to a tax of 18.5%.

Let’s see an example. The book profits of the company before claiming any exemptions (depreciation and others) under the IT Act is Rs. 10 lakhs. The MAT required to be paid will be 18.5% of 10 lakhs, which is Rs. 185000/-

Companies into Life Insurance businesses are exempted from MAT.

Get free legal advice now

More about Form 29B 

All companies that fall under the purview of Section 115JB has to file this Form 29B report. The company’s Chartered Accountant should fill it. Indeed the statement certifies that the book profit is per Section 115JB. The description should be obtained before filing the Income Tax. You need to submit the report electronically.

The format of the Form 29B is simple. It contains the following information:

  • Name and address of the Company
  • Pan card number
  • Nature of business
  • Assessment year
  • Amount of the Book profit

What is MAT Credit?

All companies must file the report in Form 29B, according to Section 115JB. Basis of the story, the company needs to pay the Minimum Alternate Tax. Indeed the company can avail of MAT credit basis the tax paid. The MAT amount paid in one year can be used as a “credit” in the subsequent years. However, there could be a difference in the amount paid between the tax paid under MAT and the Tax Payable under Regular Tax. The excess MAT amount paid is known as MAT credit. Therefore, this credit can be carried forward for 15 financial years.

To simplify, let’s look at an example of MAT carry forward mechanism.

1st year the MAT paid in excess is Rs. 2 lakhs. Year 2 – Mat paid in excess is Rs. 1 lakh. In 3rd year the excess tax paid is Rs. 4 lakhs. Hence this company at the end of 4 financial years has the total MAT credit of Rs. 7 lakhs.

Now in the 4th year, the company pays Rs. 5 lakhs as MAT; however, the actual tax to be paid is Rs. 9 lakhs. However, in this scenario, the company can use the MAT credit of Rs. 4 lakhs from the total credit amount available. So the company in the 4th year saves a substantial amount of new spending. Now in the next year as well, the MAT amount is less as compared to the actual payable amount. Here too, the company makes use of the balance of the MAT credit available to the extent of Rs. 1.50,000.

Check out this blog: Section 44ADA Of Income Tax Act – Presumption Taxation Scheme

Purpose of Form29B 

The company needs to calculate the tax amount under MAT as well as the tax to be payable as per standard tax provision. Indeed the company needs to pay whichever amount is more. So in case, the MAT amount is comparatively higher i.e. more than the regular tax payable amount. The company needs to pay MAT amount. This amount is calculated basis the book profit mentioned on Form29B. The company’s Chartered Accountant audits this report. However, Form 29B becomes a critical report to claim MAT credit. Hence filing of Form 29B is mandatory as per IT Act and is beneficial for the companies to claim the MAT credit as well.

Conclusion

Every company that has a book profit needs to pay Minimum Alternate Tax. The book profit amount is disclosed in the audited report of the Company under Form 29B. However, it assumes to be the income of the company for tax calculation purposes. Therefore, the basis of this MAT is calculated and paid. Form 29B is necessary to claim MAT credit in subsequent years. Moreover, Form 29B is of utmost importance for the company.

 

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