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CS Professional · Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Return of Companies

Sunrise Textiles Ltd, a domestic company with no IFSC unit, has a net profit of ₹4,00,000 per its statement of profit and loss. This is after debiting income-tax provision of ₹1,00,000, depreciation of ₹60,000 and a transfer to general reserve of ₹40,000. There is no brought forward loss or unabsorbed depreciation and no other adjustment. Using the 14% rate under section 206, what is the MAT payable on book profit?

Book profit is ₹6,00,000, being ₹4,00,000 plus income-tax ₹1,00,000, depreciation ₹60,000 and reserve transfer ₹40,000. MAT at 14% is ₹84,000. Each of these debited items must be added back under section 206(1)(c), so using unadjusted profit understates the tax.

  1. A₹84,000Correct
  2. B₹70,000
  3. C₹56,000
  4. D₹98,000

Explanation

Add back income-tax ₹1,00,000, depreciation ₹60,000 and reserve ₹40,000 to ₹4,00,000. Book profit = ₹6,00,000. MAT = 14% × 6,00,000 = ₹84,000. Option ₹70,000 results from using 14% on ₹5,00,000, omitting the reserve add-back and a depreciation add-back; ₹56,000 uses ₹4,00,000.

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