Taxability of Compound Financial Instruments under MAT Regime: Some Observations


Recently, I wrote about the amendments to the MAT Code carried by the Finance Act, 2017 on the Taxsutra portal. These amendments are to accommodate the changes in the calculation of ‘book profits’ pursuant to Ind-AS adoption by companies. Sub-section 2A to Section 115JB principally provides for adjustments to be made to such book profits computed in accordance with the mechanics as stated before such amendment. Sub-section 2C provides for adjustments to be made to ‘book profits’ during the year of convergence for one-fifth of the ‘transition amount’. The aforesaid has been defined in clause (iii) to the Explanation to the sub-section. It effectively is defined as the amounts adjusted against ‘other equity’ as on the convergence date.

This Article relates to this the impact of the above amendments on compound financial instruments, like Compulsorily Convertible Preference Shares (CCPS), Redeemable Preference Shares (RPS) etc. under Ind-AS 32 regime, where these instruments are treated partly debt and partly equity based on the terms of issuance. After such bifurcation, the finance cost which accrues on the debt, as classified under the Ind-AS regime, is treated as an expense and is debited to the profit and loss account for future years.

My post can be accessed here. Comments, as always, are welcome. 

Hope you have a great read and a wonderful weekend ahead! 

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