RAS question
The Minimum Alternative Tax (MAT) is levied on:
Correct answer: (B) Companies showing zero or minimal profit under normal tax provisions.
Minimum Alternative Tax is levied on companies that have book profits but show nil or very low taxable income under the normal provisions because of deductions and exemptions.
Explanation
MAT is a company-tax safeguard, not a tax on a transaction or a personal income category. It applies where a company has book profits but reports nil or very low taxable income under normal tax provisions because deductions and exemptions reduce its taxable income. The CAG report supports this framing through Section 115JB: for an assessee being a company, if income tax payable under the Act is below the prescribed share of book profit, the book profit is treated as total income and tax is charged under the special provision. That is why option B is right: MAT ensures that profitable companies cannot use normal-provision deductions to avoid paying at least a minimum tax. The current MAT rate is 15% of book profits.
Why the other options are wrong
- (A) Exports are not the taxable base for MAT; the mechanism is tied to company book profits and low tax payable under normal provisions.
- (C) Agricultural income is outside the MAT idea, which concerns companies with book profits and low taxable income after deductions and exemptions.
- (D) MAT applies to companies under the special company provision, while the CAG report separately refers to AMT for non-company cases, so it is not levied on all individual taxpayers.
Concept
Direct-tax design in Indian Economy includes tax-system limits on avoidance through deductions and exemptions. RAS regularly covers corporate taxation, revenue mobilisation and fiscal policy instruments as standard economy themes.