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MAT relief for companies facing insolvency proceedings

posted 6 years ago

In view of the problems being faced by
the companies undergoing insolvency cases under the Insolvency and Bankruptcy
Code (IBC), the Central government has relaxed certain norms linked to minimum
alternate tax (MAT). This has been effected in order to ease certain procedures
for companies fronting such proceedings and expedite quick disposal of
insolvency cases.

The underlying intent in relaxing MAT
norms is to supplement the IBC is to supplement effective implementation of IBC
provisions to sustain its core objective i.e quick disposal of insolvency cases
and to condense the hardships faced by the companies. 

The said norms are effective from the
financial year 2018-19. The norms are being relaxed exclusively for the
advantage of the companies facing insolvency proceedings provided such
proceedings are admitted by the insolvency board.

The Income Tax Department decision to
relax the MAT norms is reflection to the receipt of representations from
various stakeholders facing the insolvency proceedings and hardships as
allowance of brought forward loss for computation of book profit is
circumscribed by the Act.

Section 115JB of Income Tax Act (Act),
has been amended to facilitate companies facing insolvency proceedings to bring
forward the amount of total loss (including unabsorbed depreciation) and such
amount shall be allowed to be reduced from the book profit for the purposes of
levy of MAT.

It is expected that the simplification
of MAT norms will certainly help companies facing financial difficulties by conferring
on them the advantage of no tax payout, unlike the earlier situation of the
need to carry certain tax payout despite distressed financial position.

It is hoped that with the serious
implementation of the relaxed norms will certainly diminish financial liability
of the distressed companies and facilitate quick disposal of insolvency cases.

Research inputs by Paruchuri Baswanth
Mohan

***************

About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at [email protected].

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