Corporate tax cut: Here is why assessing the impact of MAT clarification is crucial

Recently, the Government of India proposed the biggest-ever reduction in corporate tax rate by reducing it to 22 percent, as against the current 30 percent (25 percent for corporates with lower turnover thresholds). The reduced rate is available to domestic corporates without allowing for specified deductions/ exemptions/ incentives provided under the Income Tax Act. This, along with a slew of other changes were made to the corporate tax laws through Taxation Laws (Amendment) Ordinance 2019 to make amendments in the Income Tax Act, 1961 and the Finance (No. 2) Act 2019.

The ordinance also clarified that companies opting for the 22 percent tax rate are not required to pay Minimum Alternate Tax (MAT) which led to discussion about availability of past MAT credits if a company opts for lower rate of 22 percent with strong arguments supporting each view. The government did a commendable job of clarifying their position on this issue through Circular No. 29/ 2019 dated October 2, 2019. It clarified certain uncertainties arising out of the ordinance, including a specific clarification that brought forward credit of taxes paid under MAT in any tax years prior to opting for the reduced rate would no longer be available under the new regime.

While the government has clarified its position with regard to MAT credits, binding effect of CBDT clarifications has been a subject matter of litigation in the past and it may still be open to debate till it gets enacted under the Income tax Act. Considering this, impact on the quantum of advance tax and consequential interest liability, apart from the accounting implications may need consideration by taxpayers.