Definition
Book Profit
Book profit is the profit shown in a company's audited financial statements, used as the base for computing Minimum Alternate Tax.
For MAT, the relevant base is not taxable income but book profit — the net profit in the profit-and-loss account prepared under company law, adjusted by specified additions and deductions set out in the tax law. This ties the minimum tax to the profit a company actually reports to shareholders.
The adjustments to book profit are detailed and frequently litigated, covering items like provisions, exempt income and depreciation. Understanding book profit is essential to estimating a company's MAT liability and any resulting MAT credit.
Related terms
- Minimum Alternate Tax (MAT)Minimum Alternate Tax ensures that profitable companies which reduce their tax to near zero through exemptions still pay a minimum tax on their book profits.
- MAT CreditMAT credit is the excess of Minimum Alternate Tax paid over a company's normal tax liability, which can be carried forward and set off in future years.
- Alternate Minimum Tax (AMT)Alternate Minimum Tax is the equivalent of MAT for non-corporate taxpayers, ensuring that firms and individuals claiming certain deductions still pay a minimum tax.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.