Steps to Calculate Book Profit Under Section 115JB (MAT)

Book Profit is the adjusted net profit of a company, calculated based on its Profit & Loss
Account as per the Companies Act, 2013, with specific additions and deductions under
Section 115JB.

Step-by-Step Calculation of Book Profit:

1. Start with the Net Profit from the company’s Profit & Loss (P&L) account.
2. Add back certain items (if deducted while calculating net profit as per the Companies Act, 2013).
3. Subtract specific deductions (if included in net profit as per Companies Act, 2013).
4. Final Book Profit = Net Profit + Additions – Deductions

Detailed Additions and Deductions for Book Profit Calculation

A) Add Back to Net Profit (If Already Deducted)

The following amounts must be added back to the net profit:

1. Income Tax Paid or Payable (including MAT itself).
2. Dividends Paid or Proposed by the company.
3. Amounts transferred to any Reserve/Fund (except Depreciation Reserve).
4. Provisions for Losses of Subsidiary Companies.
5. Deferred Tax and Other Provisions.
6. Depreciation (if charged to P&L Account but needs re-computation).
7. Expenditure related to Exempt Income (like agricultural income).
8. Amounts of revaluation reserve adjustments (if credited to P&L account).

B) Deduct from Net Profit (If Already Included)

The following amounts must be subtracted from the net profit:

1. Income Exempt from Tax (like agricultural income, dividend from foreign
   subsidiaries, etc.).
2. Amount Withdrawn from Reserves, if credited to P&L.
3. Depreciation as per Income Tax Act (instead of Companies Act depreciation).
4. Long-Term Capital Gains (if not taxable under normal provisions).
5. Income from Life Insurance Business.
6. Share of Profit from Partnership Firm (if already included in P&L).

Example of Book Profit Calculation

Let’s assume a company’s Profit & Loss Account shows the following details for the financial
year:

• Net Profit before tax: ₹10 Crore

• Additions:

1. Income Tax Paid = ₹50 Lakh
2. Transfer to General Reserve = ₹1 Crore
3. Depreciation as per Companies Act = ₹2 Crore

• Deductions:

1. Dividend from a foreign subsidiary (Exempt Income) = ₹1.5 Crore
2. Depreciation as per Income Tax Act = ₹1.8 Crore

Step 1: Add Back Items

• Net Profit: ₹10 Crore

1. Add ₹50 Lakh (Income Tax Paid)
2. Add ₹1 Crore (Reserve Transfer)
3. Add ₹2 Crore (Companies Act Depreciation)

• Total after Additions = ₹13.5 Crore

Step 2: Deduct Eligible Items

• ₹13.5 Crore

1. Deduct ₹1.5 Crore (Exempt Dividend Income)
2. Deduct ₹1.8 Crore (Depreciation as per Income Tax Act)

• Final Book Profit = ₹10.2 Crore

Final MAT Calculation Based on Book Profit

Now, applying MAT @15% on ₹10.2 Crore:

• MAT = 15% of ₹10.2 Crore = ₹1.53 Crore
• 4% Health & Education Cess = ₹0.0612 Crore
• Total MAT Payable = ₹1.5912 Crore

Conclusion about Book Profit

Book Profit Calculation is crucial for MAT computation under Section 115JB. By following
these steps and the addition and deduction rules, companies can correctly compute their
MAT liability and optimize their tax planning for the relevant assessment year.