Quite a “taxing” Code
- Blog|Insolvency and Bankruptcy Code|
- 514 Views
- 4 Min Read
- By Taxmann
- Last Updated on 29 June, 2022
For instance, the Income-tax Act, 1961 (the Act) contains provisions of Minimum Alternate Tax (MAT), which levies tax on the book profits of a company if the tax payable under the normal provisions of the Act is lower than the MAT payable. It is safe to say that almost all plans providing for the revival of sick companies involve the lenders taking a haircut in their loan amount. This results in write back of outstanding liabilities in the books of accounts of the sick company, which may lead to a MAT burden that is almost 20% of the write back amount. In addition, any itemised sale of assets of a sick company may have MAT implications. Although companies registered under the erstwhile SICA regime were exempted from paying MAT until the net worth of such companies turned positive, no such exemption is extended to companies under the Code. Various factions of the industry made many representations to the Ministry of Finance asking for the extension of the above MAT benefit to companies against whom such insolvency proceedings have been admitted under the Code.
Therefore, many tax issues linger around the Code, reducing its effectiveness. Like every year, the Government has sought suggestions from industry experts for amendments to be ushered in by the Budget 2018. The press release issued on 6 January, 2018, shows the commitment of the Government to support the Code. Given the impediment of bad debt in the industry and the Government’s strong determination to resolve it, the above tax incentives would be an ideal budget gift for the upcoming financial year.
Authors: Hiten Kotak, Leader – M&A Tax, PwC India and Falguni Shah – Partner, M&A Tax, PwC India
Disclaimer: The views expressed in this article are personal. It includes input from Nidhi Mehta, Associate Director, M&A Tax, PwC India, and Aaditi Kulkarni, Associate, M&A Tax, PwC India
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