Rule 118: MAT relief for past income from APA or secondary adjustment
Rule 118 provides the calculation for the specified company tax relief where current book profit includes past-year income arising from an APA or secondary adjustment. It compares the current-year tax effect with the corresponding past-year effects, subject to the current section 206 conditions.
Official notified Income-tax Rules, 2026Need advice on Rule 118?
This article is for general information. Read the official Rules and applicable Act amendments, including the Taxation and Other Laws (Amendment) Act, 2026. If you need professional advice for your situation, contact Bizeneed.
On this page
- Bare law
- Check the current Act and legacy-credit condition
- Identify the qualifying past income
- Compute the current-year difference A−B
- Compute the past-year difference C−D
- Apply the formula and zero floor
- Claim in Form 53 after reviewing the current credit position
- Key takeaways
- Practical checklist
- FAQs
- Glossary
- Official sources
Bare law
Rule 118 - Relief in tax payable under section 206(1) due to operation of section 206(1)(i)
(1) For the purposes of section 206(1)(i), the tax payable by the assessee company under section 206(1), for the tax year referred to in that section, shall be reduced by the following amount, namely: — (A-B) - (C-D), Where, — A = tax payable by the assessee company under section 206(1) on the book profit of the tax year including the past income and where there is no tax payable, the value shall be taken as zero; B = tax payable by the assessee company under section 206(1) on the book profit of the tax year excluding the past income and where there is no tax payable, the value shall be taken as zero; C = aggregate of tax payable by the assessee company under section 206(1) on the book profit of past year or years, referred to in item D, after increasing the book profit with the relevant past income of such year or years and where there is no tax payable, the value shall be taken as zero; and D = aggregate of tax payable by the assessee company under section 206(1) on the book profit of those past year or years to which the past income belongs and where there is no tax payable, the value shall be taken as zero.
(2) If the value of (A-B) - (C-D) is negative, its value shall be deemed to be zero.
(3) For the purposes of sub-rule (1) past income shall be the amount of income of past year or years included in the book profit of the tax year on account of an advance pricing agreement entered into by the assessee under section 168 or on account of secondary adjustment required to be made under section 170.
(4) On application of provision of sub-rule (1), the tax credit allowed to the assessee under section 206(1)(m) shall be reduced by the amount allowed under sub-rule (1).
(5) A claim for relief under section 206(1)(i) shall be made by an assessee company in Form No. 53 by uploading signed printout of said Form in the manner specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, and which shall be verified by the person who is authorised to verify the return of income of the assessee company under section 265.
Rule breakdown
Check the current Act and legacy-credit condition
The Finance Act, 2026 omitted section 206(1)(m) to (p) from 1 April 2026. Current section 206(1)(i)(ii) instead requires that the assessee has not utilised section 115 JAA credit under the 1961 Act in any subsequent tax year ending on or before 31 March 2026. Check that precise condition before making the relief application.
The notified Rule 118(4) still prints a reference to section 206(1)(m). That printed reference should not be treated as a fresh MAT-credit entitlement after its omission. Review any relevant legacy credit under the current Act before reconciling the claim.
Identify the qualifying past income
The past income is included in current book profit because of an APA under section 168 or a secondary adjustment under section 170. The rule is not a general relief for every prior-period accounting item.
Identify the amount, originating years and reason for its current inclusion, and reconcile them to the agreement or adjustment.
Compute the current-year difference A−B
A is the section 206(1) tax on current-year book profit including the past income; B is the corresponding tax excluding it. Where no tax is payable, the relevant value is zero.
Keep the two tax computations rather than treating the income amount itself as the tax relief.
Compute the past-year difference C−D
C aggregates the specified tax for the relevant past years after adding their past income; D aggregates the tax on those years’ book profit without that increase, with the stated zero treatment where no tax is payable.
Use the correct year allocations and full tax workings. A single blended percentage may not reproduce the required calculation.
Apply the formula and zero floor
Relief is (A−B)−(C−D); a negative result is treated as zero. Illustratively, if A−B is ₹6 lakh and C−D is ₹4 lakh, the result is ₹2 lakh. If the differences were ₹3 lakh and ₹4 lakh, relief would be zero.
These amounts illustrate arithmetic only. Actual values come from the statutory tax computations.
Claim in Form 53 after reviewing the current credit position
Rule 118(4) prints a credit-reduction instruction referencing the now-omitted clause (m). Reconcile the relevant legacy-credit position with current section 206 and obtain advice on the claim’s application; do not create a new credit by relying on the old reference.
The company claims through Form 53 by uploading the signed printout in the specified manner, verified by the person authorised under section 265. Current section 206(1)(j) also denies interest on the refund arising from clause (i). Keep the eligibility and calculation evidence with the form.
Key takeaways
Specified past income only
APA or secondary-adjustment origin is required.
Four tax amounts
Calculate A, B, C and D rather than using income directly.
Negative result becomes zero
The rule has an express zero floor.
Current-law credit check
The printed reference to omitted clause (m) does not grant fresh credit.
Practical checklist
- Trace past income to the APA or secondary adjustment.
- Prepare separate current and past-year tax computations.
- Review the current section 206 condition and relevant legacy-credit reconciliation.
- Retain Form 53 and signed supporting workings.
Avoid
- Do not use the income amount itself as the tax relief.
- Do not infer fresh credit from the rule’s reference to the omitted clause (m).
FAQs
Does every prior-year accounting adjustment qualify?
The rule defines past income by the specified APA or secondary-adjustment origin.
Can the formula produce negative relief?
A negative formula result is deemed zero under sub-rule (2).
Which claim form is prescribed?
Form 53, uploaded and verified in the specified manner.
Does the printed clause (m) reference grant a new MAT credit?
No. Clause (m) was omitted from 1 April 2026. Read the notified rule with the current section 206 relief condition and any applicable legacy-credit provisions.
Glossary
- Past income
- The past-year income included in current book profit because of the specified APA or secondary adjustment.