A MAT credit carry-forward audit recomputes the opening MAT credit balance, the credit generated or utilised in the current year as the difference between tax computed under normal provisions and tax computed under section 115JB, confirms the carry-forward period from the year of generation has not expired for any component of the balance, and separately tests whether recognition of the unutilised credit as a deferred tax asset is supported by convincing evidence that normal tax will exceed MAT within the credit's remaining carry-forward window — recognition is not automatic merely because the credit exists.
Recomputing the credit balance
- Obtain the entity's MAT credit schedule showing opening balance, year-wise generation, year-wise utilisation, and closing balance, and recompute each year's movement independently rather than accepting the running total.
- Confirm the credit generated in the current year equals the excess of MAT payable over normal tax payable for the year, computed on the entity's own return positions, not a plug figure used to balance the schedule.
- Track the credit by the year it was generated, not as a single pooled balance — this matters because the carry-forward period runs from the year of generation, so the oldest layer of credit is the one at risk of expiry first.
Carry-forward period and deferred tax recognition
| Check | Evidence | What it catches |
|---|---|---|
| Year-wise expiry tracking | MAT credit schedule by year of generation | Credit that has crossed its carry-forward window still sitting in the balance as if usable |
| Recomputation of annual movement | Tax computations for current and prior years | Errors compounding year over year in a schedule that is rolled forward rather than recomputed |
| Deferred tax asset recognition | Business projections, MAT applicability forecast | Recognition without convincing evidence the credit will actually be utilised within the window |
| Utilisation sequencing | Tax return, credit schedule | Credit utilised out of order, risking the oldest layer expiring unused while a more recent layer is drawn down first |
Regulatory requirement
The carry-forward period for MAT credit and the mechanics of its utilisation are prescribed under section 115JAA/115JB of the Income Tax Act and have been amended over time. Confirm the carry-forward period applicable to each year's credit generation before concluding the balance is still usable.
Recognizing the full MAT credit balance as a deferred tax asset without a credible forecast that normal tax will exceed MAT within the remaining window is a recurring finding in quality reviews. The projection supporting recognition needs to be revisited each year, not carried forward unchanged from when the credit was first recognized.
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
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- 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.
- Audit workflow & automationSA 570: going concern, and when it actually changes the audit reportMost going-concern evaluations end exactly where they should: no material uncertainty, no change to the report. The standard is about the minority of cases where that's not true.
- CARO & Companies ActCARO statutory dues clause: testing approachHow to test timely deposit of statutory dues for CARO reporting, handle disputed dues disclosure, and avoid redoing work already done in the GST and payroll sections.
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