CBDT Current Affairs

CBDT relaxes norms for MAT on firms facing insolvency

The Central Board of Direct Taxes (CBDT) has announced to relax norms around levy of minimum alternate tax (MAT) for insolvent companies from financial year 2017-18.

The purpose of the move is to make the Insolvency and Bankruptcy Code, 2016 more effective and minimise hardship faced by companies going in for insolvency resolution.

Minimum alternate tax (MAT)

Its aim is to bring Zero Tax Companies” into tax realm who do not pay any tax. It is ruled by provisions enclosed in section 115JB of Income Tax Act, 1961. MAT is valid to all companies comprising foreign companies. As per meaning of MAT, tax obligation of company will be higher if income tax of company calculated as per normal provision of income tax and tax calculated at 18.5% on book profit plus surcharge and cess as applicable.

Key Facts

This exemption facility will be available only for companies against whom application for corporate insolvency resolution process has been admitted by the adjudicating authority. An amendment to this effect will be made in section 115 JB of the Income Tax Act.

According to existing provisions for purposes of levy of MAT company, amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account shall be reduced from book profit. The relation of norms will allow company to reduce amount of total loss brought forward including unabsorbed depreciation from the book profit for the purposes of levy of MAR.

Background

This decision was taken based on suggestions of various stakeholders suggesting hardship faced by companies against whom application for corporate insolvency resolution process was admitted by Adjudicating Authority due to restriction in allowance of brought forward loss for computation of book profit. The Indian Banks Association (IBA) also had sought removal of MAT for new investors apprehending depressed bids.

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India-Switzerland ink agreement automatic sharing of tax-related information

India has signed agreement with Switzerland for automatic sharing of tax-related information from January 1, 2018 with an aim to combat black money.

Prior to it, India had to ask Switzerland for specific bits of information against the Indian account holder in Swiss banks. But due to its earlier secretive laws it could delay or deny information altogether.

Background

Switzerland always has been at centre of debate on black money allegedly stashed by Indians abroad. It is infamously known for very strong secrecy walls around its banking practices till few years ago. In recent past, huge global pressure has resulted in Switzerland relenting on tough secrecy clauses its local laws gave to banks.

The signing of agreement comes after completion of parliamentary procedure in Switzerland for changing domestic secretive banking laws and signing of mutual agreement between India and Switzerland. Both countries in November 2017 had signed a joint declaration for the implementation of Automatic Exchange of Information (AEOI). It provided that both countries will start collecting data in accordance with global standards in 2018 and exchange it from 2019 onwards. The AEOI conforms to norm set by Organisation for Economic Co-operation and Development (OECD) for tax transparency.

Significance

Under the automatic information exchange framework, confidentiality and data protection requirements is to be strictly followed. This process will ensure that signatory always maintains control over its exchange partners and treatment of data exchanged as per OECD norms. The automatic exchange of information will discourage Indians from stashing black money in Swiss banks.

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