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PART B: AMENDMENTS IN INCOME TAX (for May/Nov. 2018)

Prepared by:-CA. DINESH TEJWANI
Qualifications:- B.Com Hons.(A), FCA, DISA, CS Inter
Teaching:- since August 2002

ASSESSMENT OF COMPANIES - MAT AND IND AS ADJUSTMENTS

SECTION 115JB: AMENDMENT IN MAT PROVISIONS

First Amendment : Minor changes in Section 115JB

1) The words “Companies Act, 1956” have been substituted by “Companies Act, 2013”.
2) The words “Profit & Loss Account” have been substituted by “Statement of Profit and Loss”.

Second Amendment:- Additional adjustments for Computation of Book Profit for Ind AS
compliant companies
The Central Government has notified Ind AS which are converged with International Financial
Reporting Standards (IFRS) and prescribed the Companies (Indian Accounting Standards) Rules,
2015 which lay down the roadmap for implementation of these Ind AS.

Adjustments in the book profit due to adoption of Ind AS are of two types:-
 Annual Adjustments u/s 115JB(2A) and 115JB(2B) to be made every year
 Transitional Adjustments u/s 115JB(2C) on the convergence date at the time of first time
adoption of Ind AS

Special Note:- Adjustments as applicable earlier are still applicable (i.e. we may call it basic
adjustments u/s 115JB(2)), and following additional adjustments u/s 115JB(2A)/(2B)/(2C) shall be
made to book profit for computation of MAT.

Section 115JB(2A)
In case of a company whose financial statements are drawn up in compliance with Ind ASs
specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015, following
additional adjustments shall be made to book profit:-

(a) increased by amounts credited to other comprehensive income (OCI) in the statement of
profit and loss;
(b) decreased by amounts debited to other comprehensive income (OCI) in the statement of
profit and loss;
under the head "Items that will not be re-classified to profit or loss” in OCI.
(OCI profit add, OCI loss less i.e. OCI items are now subjected to MAT)

However, no adjustment shall be made, where amounts credited/debited to OCI under the head
"Items that will not be re-classified to profit or loss", in respect of following notional items:-
(i) Revaluation surplus for assets in accordance with Ind AS 16 and Ind AS 38; or
(ii) Gains /losses from investments in equity instruments designated at fair value through
OCI in accordance with Ind AS 109.
[First proviso to section 115JB(2A)]

However, in the year in which such asset/investment is actually retired, disposed, realised or
otherwise transferred, book profit of that year shall be increased/decreased, by the amounts as

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referred to in the first proviso for the previous year or any of the preceding previous years and
relatable to such asset/investment. (i.e. real gain/loss)
[Second proviso to section 115JB(2A)]

In other words, OCI includes certain items that will permanently be recorded in reserves and
hence, never be reclassified to the statement of profit and loss. But these items shall be included
in book profit for MAT purposes at the point of time as under:-
Different items Point of time for adjustment in Book Profit = Comment
Changes in revaluation  Revaluation reserve credited/debited to OCI shall not In other
surplus of PPE (property, be adjusted in the book profit in which it is debited words,
plant or equipment) and or credited. such
intangible assets gain/loss
 It shall be included in book profit of the year in shall be
(Ind AS 16 and Ind AS 38) which the asset/investment is actually retired, adjusted to
disposed, realized or otherwise transferred. book profit
Gains /losses from  Gain/loss from such investments debited/credited to not on
investments in equity OCI shall not be adjusted in the book profit in which notional
instruments designated at it is credited/debited. basis, but
fair value through OCI at the time
 It shall be added in book profit in the year in which of real
(Ind AS 109) the investment is retired/disposed/realized. gain/loss.
Re-measurements of  To be included in book profits every year as the re- This
defined benefit plans measurements gains and losses arise. adjustment
shall be
(Ind AS 19) made
every year,
Any other item  To be included in book profits every year as the gains
even if
and losses arise.
notional
items.

(c) increased by amounts debited to the statement of profit and loss (i.e. loss add);
decreased by amounts credited to the statement of profit and loss (i.e. profit less);
on distribution of non-cash assets to shareholders in a demerger in accordance with
Appendix A of Ind AS 10 event after reporting period; i.e. such profit/loss not subjected to MAT
(It is adjustment for demerged company only)

Note: - Appendix A of Ind AS 10 provides that any distributions of non-cash assets to

shareholders in a demerger shall be accounted for at fair value. The difference between carrying
value of the assets and fair value is recorded in the profit and loss account of demerged
company. Thus, reserves are debited at fair value to record the distribution as a “deemed
dividend” to the shareholders. Since there is a corresponding adjustment in retained earnings,
this difference arising on demerger shall be excluded from book profits.

Section 15JB (2B)

In demerger, in the case of a resulting company, the property and the liabilities of the
undertaking or undertakings being received by it are recorded at values different from values
appearing in the books of account of demerged company immediately before the demerger, any
change in such value shall be ignored for the purpose of computation of book profit of resulting
company. (i.e. no effect on resulting company)

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Section 115JB(2C) : Transitional Adjustment on first time adoption of Ind AS

In case of Ind AS compliant company, book profit of the year of convergence and each of the
following four previous years, shall be further increased/decreased, by 1/5 of transition
amount. i.e. Transition amount to be spread over 5 years. Please Note that Ind AS-101
is related to transition amount)

In first year of adoption of Ind AS, the companies would prepare Ind AS financial statement for
reporting year with a comparative financial statement for immediately preceding year.
As per Ind AS 101, a company would make all Ind AS adjustments on the opening date of the
comparative financial year. The entity is also required to present an equity reconciliation
between previous Indian GAAP and Ind AS amounts, both on the opening date of preceding year as
well as on the closing date of the preceding year.
For the purposes of computation of book profits of the year of adoption and for adjustments, the
amounts adjusted as on the opening date of the first year of adoption shall be considered.

For example, companies which adopt Ind AS w.e.f. 1-4-2016 are required to prepare their
financial statements for the year 2016-17 as per Ind AS.
Such companies are also required to prepare an opening balance sheet as on 1-4-2015 and restate
the financial statements for the comparative period 2015-16.
In such a case, first time adoption adjustments as of 31-3-2016 shall be considered for
computation of MAT liability for previous year 2016-17 (AY 2017-18) and thereafter.
Here 5 years period shall be previous years 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21.

Meaning of certain terms [Explanation to Section 115JB(2C)]

Clause Term Meaning
(i) Year of The previous year within which the convergence date falls.
convergence
(ii) Convergence First day of the first Ind AS reporting period as defined in Ind AS
date 101.
(iii) Transition Amounts adjusted in other equity (i.e. Retained earnings/general
amount reserves) on convergence date (excluding capital reserve and
securities premium) , but not including followings (i.e. exclusions
of Transition Amount):-
(a) Aggregate amount adjusted in OCI on the convergence date,
which shall be subsequently re-classified to the profit or loss;
(b) Revaluation surplus for assets in accordance with Ind AS 16 and
38 adjusted on the convergence date;
(c) Gains/losses from investments in equity instruments
designated at fair value through OCI in accordance with Ind AS
109 adjusted on the convergence date;
(d) Adjustments relating to items of property, plant and
equipment (PPE) and intangible assets recorded at fair value as
deemed cost in accordance with para D5 and D7 of Ind AS 101
on the convergence date;
(e) Adjustments relating to investments in subsidiaries, joint
ventures and associates recorded at fair value as deemed cost
in accordance with para D15 of Ind AS 101 on the convergence
date; and
(f) Adjustments relating to cumulative translation differences of
foreign operations in accordance with para D13 of Ind AS 101
on the convergence date.

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Note:- Point no. (b) to (f) are notional items, therefore, no adjustment is required
at that time. In these cases, adjustment shall be made at the time of actual
realization.

However, in the year in which in which asset/investment [referred to in sub-clauses (b) to (e) as
above] is actually retired, disposed, realised or otherwise transferred, book profit of that year
shall be increased /decreased, by the amounts referred to in the this sub-clause relatable to such
asset or investment.
[First proviso to section 115JB(2C)]

Further, in the year in which the foreign operation [referred to in sub clause (f) as above] is
actually disposed or otherwise transferred, book profit of that year shall be increased/decreased,
by the amounts referred to in the this sub-clause relatable to such foreign operations.
[Second proviso to sub-section (2C)]

Transitional adjustments : Analysis

(i) The adjustments arising on account of transition to Ind AS from existing Indian GAAP is
required to be recorded directly in Other Equity at the date of transition to Ind AS.
These adjustments has to be made in the following manner:-

(a) Book profit of the year of convergence and following 4 previous years shall be
increased/decreased with transitional adjustments recorded directly in Other
Equity excluding the amounts referred in (a) to (f) in the definitions of Transition
Amount), on the convergence date.

(b) Those adjustments recorded in OCI referred to (a) above (in the definition of
Transition Amount) and which would subsequently be re-classified to the profit and
loss, shall be included in book profits in the year in which these are re-classified to
the profit and loss, therefore these amounts are excluded from transition amount.

(c) Those adjustments recorded in OCI referred to (b) and (c) (in the definition of
Transition Amount) above and which would never be subsequently reclassified to
the profit and loss shall be included in book profits as under:-
Different items Point of time for adjustment in Book
Profit
Changes in revaluation surplus of To be included in book profits at the time
PPE and intangible assets of realization/disposal/retirement or
otherwise transferred
(Ind AS 16 and Ind AS 38)
Gains and losses from investments To be included in book profits equally over
in equity instrument designated at a period of 5 years starting from the year
fair value through OCI of first time adoption of Ind AS
(Ind AS 109)

Re-measurements of To be included in book profits equally over

defined benefit plans a period of 5 years starting from the year
of first time adoption of Ind AS
(Ind AS 19)

Any other item To be included in book profits equally over

a period of five years starting from the
year of first time adoption of Ind AS

(d) The other adjustments referred in (d), (e) and (f) (in the definition of Transition

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Amount) above shall be made in the following manner:-

(i) Property, Plant and Equipment (PPE) and intangible assets at fair value as
deemed cost [referred in (d) (in the definition of Transition Amount) above]
An entity may use fair value in its opening Ind AS Balance Sheet as deemed
cost for an item of PPE or an intangible asset as mentioned in para D5 and
D7 of Ind AS 101. In such cases, the treatment shall be as under:-
 Section 115JB already provide that in case of revaluation of assets,
any impact on account of such revaluation shall be ignored for the
purpose of computation of book profit. Further, adjustments in
retained earnings on first time adoption with respect to items of PPE
and intangible assets shall be ignored for the purpose of computation
of book profit.
 Depreciation shall be computed ignoring the amount of such retained
earnings adjustment.
Similarly, gain/loss on realization/disposal/retirement of such assets shall
be computed ignoring such retained earnings adjustment.

(ii) Investment in Subsidiaries, joint ventures and associates at fair value as

deemed cost [referred in (e) (in the definition of Transition Amount) above]
An entity may use fair value in its opening Ind AS Balance Sheet as deemed
cost for investment in a subsidiary, joint ventures or associate in its separate
financial statements as mentioned in para D15 of Ind AS 101.
In such cases, retained earnings adjustment shall be included in the book
profit at the time of realization of such investment.

(iii) Cumulative translation differences [referred in (f) (in the definition o

Transition Amount) above)
 An entity may elect a choice whereby cumulative translation
differences for all foreign operations are deemed to be zero at the
date of transition to Ind AS. Further, gain/loss on a subsequent
disposal of any foreign operation shall exclude translation differences
that arose before the date of transition to Ind AS and shall include
only translation differences after the date of transition.
 In such cases, to ensure that such Cumulative translation differences
on the date of transition which have been transferred to retained
earnings, are taken into account, these shall be included in the book
profit at the time of disposal of foreign operations as mentioned in
para 48 of Ind AS 21.
(ii) All other adjustments to retained earnings (recorded as other equity) at the time of
transition (including for example:-
 Decommissioning Liability,
 Asset retirement obligations,
 Foreign exchange capitalization/decapitalization,
 Borrowing costs adjustments etc.)
shall be included in book profits, equally over a period of 5 years starting from the year
of first time adoption of Ind AS.

(iii) Section 115JB(2) already provides for adjustments of deferred tax and its provision.
Therefore, any deferred tax adjustments recorded in Reserves and Surplus on account
of transition to Ind AS shall also be ignored.
FAQs answered vide CBDT Circular No. 24/2017 dated 25.07.2017

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Question 1:
The profit for the period may include Marked to market (MTM) gains/losses on account of fair
value adjustments on various financial instruments recognised through profit or loss (FVTPL fair
value through profit and loss account).
A situation may arise, where losses on account of fair value adjustments could be added back as
basic adjustments u/s 115JB(2). Whether the losses on such instruments require any adjustment
for computing book profits?

Answer:
Since MTM gains recognised through profit or loss on FVTPL classified financial instruments are
already included in book profits, therefore, MTM losses on such instruments recognised through
profit or loss shall not require any adjustments u/s 115JB(2).
However, in case of provision for diminution/ impairment in value of assets other than FVTPL
financial instruments, basic adjustment u/s 115JB(2) shall apply.
But, where gains and losses for financial instruments are recognised through OCI, the
additional adjustments u/s 115JB(2B) shall continue to apply.

Question 2:
What shall be the starting point for computing Book profits u/s 115JB for Ind AS compliant
companies? Whether:-
 Profit before OCI [Item number XIII in Part 2 (Statement of Profit and Loss) of Division II
of Schedule III to the Companies Act 2013] or
 Total Comprehensive Income (including OCI) [Item number XV in Part 2 (Statement of
Profit and Loss) of Division II of Schedule III to Companies Act 2013]
shall be the starting point?

Answer:
Starting point for computing Book profits for Ind AS compliant companies shall be Profit before
other comprehensive income (OCI) [Item number XIII in Part 2 (Statement of Profit and Loss) of
Division II of Schedule III to the Companies Act 2013].

Question 3:
As per Explanation to Section 115JB(2C), convergence date is defined as the first day of first Ind
AS reporting period as defined in Ind AS 101. Memorandum explaining Bill mentions that the
adjustment as on the last day of the comparative period is to be considered. What would be the
appropriate manner for computation of transition amount on convergence date, 1 st April i.e.
at the start of the day OR at the end of the day?

Answer:
The amounts as on start of opening date of first year of adoption should be considered for
computation of transition amount.

For example, companies which adopt Ind AS w.e.f. 1-4-2016 are required to prepare their
financial statements for the year 2016-17 as per requirements of Ind AS. Such companies are also
required to prepare an opening balance sheet as of 1-4-2015 and restate the financial statements
for the comparative period 2015- 16.

In such a case, first time adoption adjustments as of 31-3-2016 should be considered [i.e. the
start of business on 1-4-2016 (or, equivalently, close of business on 31-3-2016)] for
computation of MAT liability for previous year 2016-17 (AY 2017-18) and thereafter.
Question 4:

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As per Indian GAAP, proposed dividend was required to be recognized in financial statements for
the year for which it pertained to, even though these were declared in the subsequent year.

As per Ind AS, proposed dividend (including CDT) is required to be recognized in the year in
which it has been declared rather than the year for which it pertains to.

On transition to Ind AS, proposed dividend for FY 2015-16, which was recognized in P&L account
in FY 2015 -16, is required to be reversed and credited to Retained Earnings. For the
computation of MAT, whether these balances would form part of transition amount and thus be
adjusted over a period of 5 years ?

Answer:
Adjustment of proposed dividend (including CDT) shall not form part of transition amount,
Since section 115JB already provides for adjustments for dividend for computation of book profit.

Question 5:
Under Ind AS, adjustments on transition date may have a corresponding impact on deferred
taxes. Should the deferred taxes on such amounts be considered for the purpose of transition
amount?

Answer:
Any deferred taxes adjustments recorded on the transition date shall be ignored for the
purpose of computing Transition Amount.

Question 6:
Section 115JB(2) provides for adjustments for computation of book profit for amounts set aside
as provision for diminution in the value of any asset. Convergence date adjustments may include
adjustment for Provision for Bad and Doubtful Debts (Expected Credit Loss adjustment) at
the time of transition. Whether these adjustments would form part of transition amount ?

Answer:
Adjustments relating to provision for diminution in the value of any assets (other than the those
mentioned u/s 115JB(2) as basic adjustments), shall not be considered for Transition Amount.
Therefore, adjustments relating to provision for doubtful debts shall not be considered for
transition amount.

Question 7:
Whether changes in share application money on re-classification to “Other Equity” would form
part of the Transition Amount?

Answer:
Share application money pending allotment, which is re-classified to Other Equity on transition
date, shall not be considered for computation of Transition Amount.

Question 8:
Under Ind AS, Investments in preference share is considered to be a liability and corresponding
dividend expense is debited to P&L account as interest cost. Should such interest expenses on
preference shares be deducted for the purpose of MAT computation?

Answer:

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For the purpose of computation of MAT, profit/Transition Amount shall be increased by

dividend/interest on preference share (including CDT), whether presented as dividend or
interest.

Question 9:
How do we account for items such as equity component, if any, of financial instruments like
Non-Convertible debentures (NCDs), Interest free loan etc. included in other equity for
computation of transition amount ?

Answer:
Items such as equity component of financial instruments like NCD’s, Interest free loan etc. would
be included in Transition Amount.

Question 10:
Where revaluation/fair value adjustments have been made to items of Property, Plant &
Equipment (PPE) under Ind AS, book profit of the previous year in which the items of PPE are
retired, disposed or realised shall be increased/decreased, by revaluation amount relatable to
such items of PPE.

Whether revaluation amount to be considered for adjustment should be:-

 gross amount of revaluation OR
 amount after adjustment of depreciation on revaluation amount?

Answer:
Book profit of the previous year in which the items of PPE are retired, disposed, realised or
otherwise transferred shall be increased/decreased, by revaluation amount after adjustment
of depreciation on revaluation amount relatable to such asset.

This has been explained by an illustration as under:-

PPE Fair
Particulars As per As per Ind-AS Value/Revaluation
Old Indian (considering fair Adjustments and
GAAP value/revaluation corresponding
adjustment on PPE) depreciation
WDV/Deemed Cost as on 1 April 2015 100 1000 900
Depreciation @ 10% for F. Y. 2015-16 10 100 90
WDV as on 1 April 2016 90 900 810
Depreciation @ 10% for F.Y. 2016-17 9 90 81
WDV as on 1 April 2017 81 810 729*
Sale value as on 1 April 2017 900 900
Profit on sale credited to P & L 819 90

Adjustment for MAT i.e. revaluation 0 729*

amount after adjustment of
depreciation
Profit on sale to be considered for 819 819
MAT
.
Question 11:
How should adjustments for service concession arrangements be treated for the purpose of

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computation of book profit under MAT?

Answer:
Adjustments on account of Service Concession arrangements would be included in the
Transition Amount and also on an ongoing basis.

Question 12:
Section 115JB(2) provides for deduction of lower of brought forward loss or unabsorbed
depreciation as per books of account for computation of book profits.

If after adjustment of transition amount, losses as per books of account gets wiped off, whether
deduction for such amount would be available for AY 2017-18 onwards?

Answer:
 For AY 2017-18, deduction of lower of brought forward losses or unabsorbed depreciation
shall be allowed based on the position as on 31-3-2016.

 For subsequent periods, position as per books of account drawn as per Ind AS shall be
considered for computing lower of brought forward loss or unabsorbed depreciation.

Question 13:
How Capital Reserves or Securities Premium existing as per old Indian GAAP reclassified to
Retained Earnings/Other Reserves on Convergence date be treated for MAT purpose.

Answer:
Capital Reserves or Securities Premium existing as on the convergence date as per old Indian
GAAP, which are reclassified to Retained Earnings/ Other Reserves under Ind AS and vice versa,
shall not be considered for Transition Amount.

Even after such reclassifications, amount of revaluation reserve shall continue to be

considered as revaluation reserve for computation of book profit and shall also include
transfer to any other reserves (by whatever name called) or capitalised.

Question 14:
Companies, which follow accounting year other than March, 2017 ending for Companies Act
purposes and are required to transition to Ind AS, will have to prepare financial statements for
MAT purposes for FY 2016-17 partly under Indian GAAP and partly under Ind AS. How should such
companies compute MAT on transition to Ind AS?

Answer:
1) In view of second proviso to section 115JB (2), companies will be required to follow Indian
GAAP for pre-convergence period and Ind AS for balance period. For example, a company
following December ending will be required to prepare, accounts for MAT purposes:-
 under Indian GAAP for 9 months upto December 2016 and
 under Ind AS for 3 months thereafter.
2) Transition amount will be calculated with reference to 1-1-2017 beginning.
SECTION 115JAA: MAT TAX CREDIT IN RESPECT OF TAX PAID u/s 115JB
Accumulation MAT credit arise in the year in which MAT exceeds Normal tax
MAT credit available = MAT - Normal tax

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Utilization/ MAT credit shall be allowed to be set off/utilized in the year in which
set off Normal tax exceeds MAT
MAT credit set off/utilized= Normal tax – MAT
Time limit The carry forward of MAT credit shall be allowed only upto next 10 years 15
years immediately succeeding the year in which tax credit becomes allowable.
(thereafter it shall lapse).
Notes: -
1) Refund of MAT credit shall not be allowed.
2) Interest on MAT credit shall also not be allowed.
3) No MAT credit of the company shall be allowed to be availed in the hands of LLP as AMT
credit, where a private company / unlisted public company is converted into LLP. This rule is
applicable whether or not such conversion satisfies conditions of section 47(xiiib).
4) MAT credit shall not be allowed to be carried forward to subsequent year to the extent
such credit relates to the difference between the amount of:-
 foreign tax credit (FTC) allowed against MAT and
 FTC allowable against Normal Tax (i.e. tax computed under normal/regular
provisions of Act other than the provisions relating to MAT).

Example: -
D ltd., an Indian company, gives following data. Find out tax payable for the AY 2018-19 and
amount of MAT credit.
Particulars Rs. in
crore
Tax payable under normal provisions (ignoring section 115JB) (a) 3
Tax payable u/s 115JB (b) 50
Tax paid in a foreign country (which is otherwise eligible for claiming as tax (c) 45
credit under section 90/90A/91)

Answer:-

Position before amendment:-

Tax payable before foreign tax credit [(a) or (b), whichever is higher] (d) 50
Less : Foreign tax credit (c) (e) 45
Tax payable for AY 2018-19 [(d) - (c)] (f) 5
MAT credit (before amendment) [excess of (b) over (a)] (g) 47

Position after amendment:-

MAT credit originally Difference credit not allowable

allowable FTC allowable to pay MAT - FTC allowable to pay Normal Tax
47 - (45 - 3)
47 42
= 5 MAT credit allowed finally to be carry forward

ALTERNATE MINIMUM TAX (AMT)

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AMT CREDIT u/s 115JD Similar to Section 115JAA for MAT credit
Accumulation AMT credit arise in the year in which AMT exceeds Normal tax
AMT credit available = AMT - Normal tax
Utilization/ AMT credit shall be allowed to be set off/utilized in the year in which
set off Normal tax exceeds AMT
AMT credit set off/utilized= Normal tax – AMT
Time limit The carry forward of AMT credit shall be allowed only upto next 10 years 15
years immediately succeeding the year in which tax credit becomes allowable.
(thereafter it shall lapse)
Notes: -
1) Refund of AMT credit shall not be allowed.
2) Interest on AMT credit shall also not be allowed.
3) No MAT credit of the company shall be allowed to be availed in the hands of LLP as AMT
credit, where a private company / unlisted public company is converted into LLP. This rule is
applicable whether or not conversion takes place in accordance with section 47(xiiib).
4) AMT credit shall not be allowed to be carried forward to subsequent year to the extent
such credit relates to the difference between the amount of:-
 foreign tax credit (FTC) allowed against AMT and
 FTC allowable against Normal Tax (i.e. tax computed under normal/regular
provisions of Act other than the provisions relating to AMT).

DT Amendments 2018 Prepared by CA. DINESH TEJWANI (Office No. 9799899536, 7742288155)