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As corporate India gears up to switch to a new accounting standard (Ind-AS) from FY17, the government has set up a committee to assess the impact of minimum alternate tax (MAT) on companies under the new accounting regime.
The committee, supervised by the Central Board of Direct Taxes (CBDT), has experts from the Institute of Chartered Accountants of India (ICAI), taxation and senior officials of the tax department as its members. The committee will look at ways to resolve the differences, arising in MAT computation when a company adopts the International Financial Reporting Standards-compliant Ind-AS.
Several industry bodies had earlier made a representation to the CBDT that the issue of higher incidence of MAT on companies that follow the new accounting standard was making them cagey.
Speaking at a conference on financial reporting, Rajesh Kumar Bhoot, director, CBDT, said the committee was expected to submit its report by October. Tax experts said companies that were covered under MAT might experience significant increase in tax liability due to use of fair value method of accounting under Ind-AS.
“ Due to increased use of fair value accounting under Ind-AS, unrealised gains on items such as derivatives, investments, etc., will get recognised in income statement, which is presently not done under Indian GAAP. Since, this will potentially increase the reported amount of accounting profits, it could also cause higher MAT outflows,” said Sumit Seth, partner and IFRS leader, PricewaterhouseCoopers.
Tax experts added that companies that report under Ind-AS would find it challenging to pay MAT on some of these unrealised fair value gains, which may get reversed in subsequent periods.
Experts said the committee could recommend a change in the definition of “book profit” under the Income Tax Act, 1961 to resolve the issue.
“Government would have to expand the definition of book profit, as given under the Income-Tax Act 1961 for computation of MAT, to take into account the impact of changes to financial reporting as applicable to Ind-AS companies," said Sai Venkateshwaran, Partner – advisory India head - Accounting Advisory Services, KPMG.
“Government would have to expand the definition of book profit, as given under the Income-Tax Act 1961 for computation of MAT, to take into account the impact of changes to financial reporting as applicable to Ind-AS companies," said Sai Venkateshwaran, Partner – advisory India head - Accounting Advisory Services, KPMG.
Companies with a turnover of Rs 500 crore or more are slated to adopt the new IFRS-compliant accounting standard from April 2016. The government has made it optional for these companies to adopt Ind-AS in the current financial year, FY 2016.
However, not many companies are voluntarily coming forward to adopt the new accounting standard, said many tax experts. CBDT officials said that the department may come out with a guidance note in this respect in the coming months.
However, not many companies are voluntarily coming forward to adopt the new accounting standard, said many tax experts. CBDT officials said that the department may come out with a guidance note in this respect in the coming months.
