ITRTaxation

All About Form 29B Under the Income Tax Act, 1961

Running a business is an exciting and highly rewarding experience, but business owners need to pay attention to taxation laws to ensure they stay on the right side of the law. Form 29B enables companies to disclose their book profits and is an integral part of maintaining tax compliance.

Business owners need to keep India’s taxation laws in mind at all times to prevent non-compliance. Not filing the right forms and returns can make your company liable to pay penalties, fines, and face legal prosecution. Hence, business owners need to constantly update themselves regarding such laws to ensure they stay compliant and operate smoothly. One of the many mandatory filing requirements that companies functioning in India have to meet is submitting Form 29B to disclose their book profits to the government. Here’s a look at everything you need to know about filing Form 29B the right way.

What Is a Zero-tax Company?

All companies must prepare their account books and other financial documents. The tax liability of companies depends on these accounts and the calculation is done based on the Income Tax Act guidelines. The profits that businesses show in their profit and loss statement are known as book profits, and this serves as the company’s income for taxable purposes. Many companies generate book profits but report nil tax as per income-tax provisions. Indian tax laws define such companies as zero-tax companies. These companies hold substantial book profits but claim deductions and exemptions under the IT Act, and hence reduce their tax liability to zero.

What Is the Minimum Alternate Tax?

Since having too many zero-tax companies reduces the overall revenue generated by the government, they are actively trying to bring these under the IT Act. The government introduced Section 115JB under The Finance Act, 1987 to bring such companies under the purview of the Income Tax Act. As per Section 115JB, companies have to pay a minimum alternate tax, better known as MAT, of 18.5%. Hence, book profits highlighted by the company are liable to a tax rate of 18.5%. 

Let us consider an example to understand this concept further. Imagine the book profits of a company before claiming any exemptions, such as depreciation as per the IT Act is ₹10 lakhs. Hence, the company must pay MAT of 18.5% on the 10 lakhs, amounting to ₹1,85,000/-.

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What to Know About Form 29B?

  1. All companies that fall under the purview of Section 115JB have to file a Form 29B report. The company must hire a professional chartered accountant to fill and submit this form to the Income Tax department.
  2. Form 29B is a document that helps certify that the company’s book profits are following Section 115JB. The description must be submitted or reported electronically before the company files the rest of its IT returns.
  3. Companies must submit Form 29B in a format prescribed by the government. Hence, it is advisable to take professional help for the same to avoid errors and penalties at later stages. Service providers such as Vakilsearch can help companies file their returns on time. They prevent them from being liable to pay fines and penalties.
  4. Form 29B must contain details regarding the name, address, nature, and PAN of the company. Additionally, the document must also mention the assessment year of filing and the amount of book profit declared by the company.

The Delhi bench of the Income Tax Appellate Tribunal concluded in July 2020 that a business’s loss and expenditure are different. As per the provisions of Section 115JB of the Income Tax Act, 1961, companies cannot enhance taxable profits by adding losses incurred while redeeming mutual funds. Hence, all companies that fall under the purview of Section 115JB have to file Form 29B without fail. 

What Is MAT credit?

As per Section 115JB, all companies need to pay the minimum alternate tax and they can avail of MAT credit on the tax paid. As a result, the MAT amount paid in one year can serve as credit in the subsequent years. However, there could be a difference in the amount paid under MAT. And the company’s tax liability under regular taxation norms. In such cases, the excess MAT amount paid becomes MAT credit, which companies can carry forward for up to 15 financial years.

Let us take a look at an example to understand this process better. Imagine your company paid MAT in excess of ₹2 lakhs in one year. In the second year, you had to pay MAT in excess of ₹1 lakh. In the third year, the excess tax paid by you amounted to ₹4 lakhs. Hence, by the end of four years, the company has accumulated a total MAT credit of ₹7 lakhs. Imagine that, in the fourth year, the company pays ₹5 lakhs as MAT, wherein the tax liability was ₹9 lakhs.

In such cases, the company can use their MAT credit to pay the additional tax liability they owe the government. As a result, the company saves a substantial amount by setting off their credit from past years. In the next year as well, the MAT amount is less when compared to the actual payable amount. Hence, the company can use their balance MAT credit to pay off their dues.

Why File Form 29B

Companies must calculate the tax due under MAT and as per standard tax laws and pay the larger amount as their tax liability. If the MAT amount is comparatively higher, then the company must pay the MAT liability is calculated based on their book profits. Form 29B is the document that specifies the company’s book profits and hence is an integral part of staying tax compliant. Additionally, Form 29B is a critical report that helps companies claim MAT credit. Hence filing Form 29B is mandatory as per the IT Act. It is beneficial for the companies as it helps them claim the MAT credit they are due.

How We Can Help

All companies that have a book profit need to pay minimum alternate tax, and Form 29B helps disclose this profit amount through an audited report. Not only is this a mandatory compliance requirement, but it also helps companies claim credit in subsequent years. Hence, business owners must ensure such filings occur accurately, routinely, and without any hiccups. Since Form 29B is of utmost importance to companies, most businesses rely on third-party service providers to ensure smooth filing and submission. Vakilsearch can help your business carry out this filing with ease, taking a load off your plate when it comes to maintaining compliance. To kickstart your filing, reach out to our representative, and schedule a meeting with our legal experts at the earliest!

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