Can you tell me about the recent CBDT circular on MAT credits and how it impacts the companies moving to 22% tax? Looks like it is a dampener.

The CBDT circular issued last week refused MAT credits for companies that shift to 22% tax bracket, which did leave the markets a tad disappointed. In fact, CBDT clarified that companies that opt for the new 22% tax formula will not be eligible for MAT credits or credits for accumulated depreciation. Let us look at this in a little more detail.

Under MAT system, companies are required to pay a bare minimum 18.5% MAT to the government, even if the actual tax liability is lower. This can be later claimed as credit. This system has been going on for over 20 years now. The new 22% tax bracket will be without any rebates / exemptions and also not attract MAT. The problem is that most large companies have MAT credits running into hundreds of crores, apart from depreciation credits. By refusing MAT credit for past years, the CBDT has put the companies looking to shift to 22% formula in a dilemma as no company wants to lose past tax credits.