Auditing a minimum alternate tax computation under section 115JB means independently recomputing book profit starting from the profit as shown in the statement of profit and loss prepared under Schedule III, applying the specific additions (such as amounts carried to any reserve, provisions for unascertained liabilities, and certain disallowed expenses) and deductions (such as brought-forward loss or unabsorbed depreciation, whichever is lower, as per books, and income exempt under specific provisions) listed in the section, applying the MAT rate to arrive at tax payable, and comparing this to tax computed under normal provisions to confirm the higher of the two was actually paid; the exact list of additions and deductions and the current MAT rate should be confirmed against the current Income-tax Act.
Book profit adjustments to test
| Adjustment | What to verify |
|---|---|
| Amount carried to any reserve (other than specifically excluded reserves) | Confirm the transfer to reserve during the year is correctly added back, and that any reserve movement specifically excluded under the section is not added back by mistake |
| Provision for diminution in value of any asset | Trace provisions for impairment or diminution recognised through profit and loss and confirm they are added back for MAT purposes even if adjusted for normal tax under a different provision |
| Provision for unascertained liabilities | Distinguish a provision for a liability that is ascertained in amount but uncertain in timing (not added back) from a provision for a liability not ascertained at all (added back); this distinction is frequently applied incorrectly |
| Deferred tax and the provision for it | Confirm deferred tax expense or income recognised in the statement of profit and loss is appropriately adjusted, since deferred tax has no place in a MAT computation based on current tax concepts |
| Brought forward loss or unabsorbed depreciation deduction | Recompute the lower of brought-forward business loss and unabsorbed depreciation as per the books of account, and confirm the amount claimed matches the company's own book records of these figures, not the income-tax return figures |
MAT credit tracking
- 01Recompute the MAT credit generated for the yearMAT credit arises as the excess of MAT paid over tax payable under normal provisions for that year; recompute this independently rather than accepting the carried-forward schedule without recalculation.
- 02Confirm the credit is tracked against the correct carry-forward periodMAT credit can be carried forward and set off against normal tax liability in excess of MAT in a future year, subject to a prescribed number of years; confirm the schedule tracks each year's credit separately with its own expiry rather than a single pooled balance.
- 03Check utilisation in the current year against the correct years' credit, oldest firstWhere credit is utilised, confirm it is set off against the earliest available credit before it lapses, consistent with how the company's own schedule should be maintained.
- 04Confirm the deferred tax asset recognised for MAT credit meets recognition criteriaA deferred tax asset for MAT credit carried forward is recognised only to the extent there is convincing evidence the company will pay normal tax and be able to utilise the credit within the available period; test this judgement rather than assuming recognition is automatic.
A company with a large unutilised MAT credit sitting close to its expiry window, and no documented basis for expecting normal tax liability to exceed MAT in the remaining years, should not be carrying the full deferred tax asset for that credit; this is a recurring area of overstatement.
Regulatory requirement
The exact list of additions and deductions to book profit, the MAT rate, surcharge and cess, and the MAT credit carry-forward period are set out in section 115JB and the Income-tax Act as currently in force. Confirm all of these against current source material before finalising the computation.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- CARO & Companies ActAdvance tax computation review: what an auditor checksWhat an auditor checks when reviewing advance tax provisioning: estimated income basis, instalment timing, and interest exposure under sections 234B and 234C.
- Audit documentationInd AS 12: income taxes, and how a deferred tax balance actually gets builtDeferred tax isn't computed from the profit and loss difference between book and tax. It's computed balance sheet item by balance sheet item, and that distinction changes the whole calculation.
- CARO & Companies ActICDS: audit considerations for tax audit reportingHow ICDS diverges from Ind AS and Indian GAAP, and what an auditor checks when reconciling book profit to taxable income for ICDS reporting.
- CARO & Companies ActForm 3CD: a clause-by-clause walkthrough for the tax auditorA practical walkthrough of the most audit-relevant Form 3CD clauses: disallowances, TDS, inventory valuation, loans and GST reconciliation.
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