PwC ReportingInBrief
Amendment to the Finance Bill, 2017: Framework
for MAT levy for Ind AS compliant companies
In brief
The Finance Bill - 2017 was tabled in Lok Sabha on 1 February 2017 and it proposed amendments to section 115 JB
of the Income Tax Act; 1961 to provide the framework for computation of book profit for Ind AS compliant
companies in the year of adoption and thereafter. We earlier issued PwC ReportingInBrief on framework for
computing book profit for the purpose of MAT levy on the basis of proposed amendments.
The amendments to the Bill introduced in Lok Sabha on 20 March 2017 have changed the definition of “transition
amount”. The Lok Sabha passed the Finance Bill – 2017 on 22 March 2017. The Bill would now go to the Rajya
Sabha for its approval.
This InBrief discusses the impact of the change in definition of “transition amount” on framework for computation
of book profit.
Let's talk
The Phase I companies are adopting Ind AS during the current financial year ending 31 March 2017 with
comparative year 31 March 2016 and transition date of 1 April 2015. For accounting purposes on account of first
time adoption of Ind AS, transition adjustments are recorded in opening equity as at 1 April 2015. However, for
MAT purposes, the transition adjustments as of 31 March 2016 shall be considered for computation of MAT liability
for the previous year 2016-17 (assessment year 2017-18) and thereafter.
The transition amount was earlier defined as follows:
“transition amount means the amount or the aggregate of the amounts adjusted in the other equity (excluding
equity component of compound financial instruments, capital reserve, and securities premium reserve) on the
convergence date excluding certain items”
The final bill amends the definition of the ‘transition amount’ and omits the term “equity component of
compound financial instruments” from the exclusions given in the definition. The amended definition reads
as follows:
“transition amount means the amount or the aggregate of the amounts adjusted in the other equity (excluding
capital reserve and securities premium reserve) on the convergence date excluding certain items”
The above amendment will have an impact on the response to FAQ 23 included in our previous InBrief and the
revised response to FAQ is given below:
Q. An entity issues optionally convertible debentures with a coupon rate of 5%. The conversion option meets the
definition of equity as per Ind AS 32, Financial instruments - presentation and is accounted as a compound
financial instrument at the date of transition to Ind AS. Whether the equity portion of the compound instrument is
subject to MAT? How will transaction costs and interest expense be considered for computation of MAT liability?
Under previous Indian GAAP, the instrument would be classified as a liability in entirety. The transaction costs
would generally be included in profit or loss as incurred and so would also form part of the book profit for MAT
purposes. Interest expense at coupon rate of 5% would also be deductible for MAT levy.
However, under Ind AS, transaction costs relating to issue of compound financial instruments are allocated to the
debt and equity component of such compound financial instrument. The transaction cost allocated to the equity
component is not deductible for MAT as it will not form part of profit or loss. The transaction costs relating to the
debt component is included as part of effective interest rate (EIR) computation. The cumulative interest expense
under Ind AS would be higher as compared to interest expense under previous Indian GAAP due to separate
accounting of the conversion option and deferral of transaction costs over the tenure of the loan. Such interest
expense will form part of the book profit for MAT purposes.
Further, the credit in ‘other equity’ on account of separation of the conversion option on the date of transition to
Ind AS will have MAT implications. Consequently, one-fifth of the transition amount will be included in the book
profit of year of adoption and each of the subsequent four years for MAT purposes.
The takeaway
The amendment aims to bring in neutrality in tax treatment of convertible/compound instruments outstanding at
transition compared to tax treatment of such instruments under Indian GAAP, whereby the credit in equity will be
taxed over 5 years with the corresponding impact of higher interest expense (basis effective interest rate method)
being deducted over the remaining tenure of the liability for MAT purposes.
Previous publications
Previous publications
Our offices
Ahmedabad
Bengaluru
Chennai
1701, 17th Floor, Shapath V
Opposite Karnavati Club
S G Highway
Ahmedabad, Gujarat 380 051
Phone: [91] (79) 3091 7000
The Millenia, Tower D
#1 & 2 Murphy Road, Ulsoor
Bengaluru, Karnataka 560 008
Phone: [91] (80) 4079 4000
Prestige Palladium Bayan,
8th Floor
129–140, Greams Road
Chennai, Tamil Nadu 600 006
Phone: [91] (44) 4228 5000
Hyderabad
Kolkata
Mumbai
Plot no. 77/A, 8-624/A/1
3rd Floor, Road no. 10
Banjara Hills
Hyderabad, Telangana 500 034
Phone: [91] (40) 4424 6000
Plot nos 56 & 57
Block DN-57, Sector V
Salt Lake Electronics Complex
Kolkata, West Bengal 700 091
Phone: [91] (33) 2357 9100
252 Veer Savarkar Marg
Next to Mayor’s Bungalow
Shivaji Park, Dadar
Mumbai, Maharashtra 400 028
Phone: [91] (22) 6669 1000
New Delhi/Gurgaon
Pune
Building 8, Tower B
DLF Cyber City
Gurgaon, Haryana 122 002
Phone: [91] (124) 462 0000
Tower A - Wing 1, 7th Floor
Business Bay
Airport Road, Yerawada
Pune, Maharashtra 411 006
Phone: [91] (20) 4100 4444
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157
countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax
services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
In India, PwC has offices in these cities: Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai
and Pune. For more information about PwC India’s service offerings, visit www.pwc.com/in
PwC refers to the PwC International network and/or one or more of its member firms, each of which is a separate,
independent and distinct legal entity in separate lines of service. Please see www.pwc.com/structure for further
details.
©2017 PwC. All rights reserved
You can connect with us on:
facebook.com/PwCIndia
twitter.com/PwC_IN
linkedin.com/company/pwc-india
youtube.com/pwc
pwc.in
Data Classification: DC0
This document does not constitute professional advice. The information in this document has been obtained or derived from sources believed by
PricewaterhouseCoopers Private Limited (PwCPL) to be reliable but PwCPL does not represent that this information is accurate or complete. Any
opinions or estimates contained in this document represent the judgment of PwCPL at this time and are subject to change without notice. Readers of
this publication are advised to seek their own professional advice before taking any course of action or decision, for which they are entirely
responsible, based on the contents of this publication. PwCPL neither accepts nor assumes any responsibility or liability to any reader of this
publication in respect of the information contained within it or for any decisions readers may take or decide not to or fail to take.
© 2017 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a
limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of
PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.