MAT (Section 115JB) vs Regular Corporate Tax in India

Section 115JB of the Income-tax Act, 1961 — recast as section 206 of the Income-tax Act, 2025 — is India's Minimum Alternate Tax (MAT): a 15% floor tax on book profits, charged whenever a company's regular tax liability falls below it. MAT targets so-called "zero-tax companies" that used legitimate deductions and exemptions to reduce their taxable income to zero or near-zero while reporting healthy book profits to shareholders.

For how MAT interacts with a foreign company's broader tax position, including permanent establishment status, see our FAQ guide to Indian taxation for foreign companies. The bottom line: if your Indian subsidiary is newly incorporated with no legacy deductions, opt for section 200 read with section 205(1) of the Income-tax Act, 2025 (section 115BAA of the Income-tax Act, 1961) — a 22% flat rate with no MAT. If you have a grandfathered SEZ entitlement or R&D deductions that bring your effective rate below 22%, stay on the regular regime and manage MAT strategically.

This choice is especially consequential for wholly-owned subsidiaries of foreign companies, where the decision to opt into section 200 is irrevocable. Get it wrong, and you are locked into the higher-tax regime permanently.

Quick Comparison Table

How MAT Works — Section 206 Calculation

MAT is not a separate tax. It is a minimum floor. Every company computes tax liability two ways:

1. Regular method: Apply corporate tax rates (25% or 30%) to taxable income after all deductions
2. MAT method: Apply 15% to book profit (net profit per P&L, adjusted per section 206(1)(c) and (d))

You pay whichever is higher. If MAT exceeds regular tax, the difference becomes MAT credit under section 206(1)(m), which you can carry forward for 15 tax years and use when regular tax exceeds MAT in future years.

Book Profit Adjustments

Book profit is not simply the net profit from your financial statements. Section 206(1)(c) requires specific adjustments:

Effective Rate Comparison by Company Profile

Section 200 — The Game Changer for Foreign Subsidiaries

Introduced in September 2019 as section 115BAA of the Income-tax Act, 1961 and carried forward as section 200 read with section 205(1) of the Income-tax Act, 2025, the regime lets any domestic company opt for a flat 22% tax rate (effective 25.17% including 10% surcharge and 4% cess). The trade-off: you surrender most deductions and exemptions, and MAT no longer applies — section 206(1)(q)(ii) puts a company that has exercised the option under section 200(5) outside MAT altogether. See our walkthrough on how to calculate your subsidiary's effective tax rate for the full ETR calculation including surcharge and cess.

What You Give Up Under Section 200

• The SEZ deduction under section 144 of the Income-tax Act, 2025. That deduction is a grandfathering shell: it is available only to a unit that began to manufacture, produce or provide services under section 10AA of the Income-tax Act, 1961, and only for the tax years that section would have allowed (100% for the first 5 years, 50% for the next 5). No new SEZ unit can enter the scheme.
• Additional depreciation on new plant and machinery. The allowance under section 32(1)(iia) of the Income-tax Act, 1961 has no counterpart in the Income-tax Act, 2025, so from tax year 2026-27 no company can claim it in any regime.
• Scientific-research deduction under section 45(2) (in-house R&D facility) and section 45(3) (sums paid to approved research bodies) of the Income-tax Act, 2025 — section 35(2AB) and section 35(1)(ii) of the Income-tax Act, 1961
• Investment-linked deductions under Chapter VIII of the Income-tax Act, 2025 (sections 138, 139, 140 and 141 — sections 80-IA, 80-IAB, 80-IAC and 80-IB of the Income-tax Act, 1961) — see our glossary entry on section 140 (section 80-IAC)
• All existing MAT credit — it lapses immediately on opting in

What You Keep Under Section 200

• Section 146 of the Income-tax Act, 2025 (section 80JJAA of the Income-tax Act, 1961) — 30% of additional employee cost for three years
• Section 148 of the Income-tax Act, 2025 (section 80M of the Income-tax Act, 1961) — deduction for inter-corporate dividends
• Normal depreciation under section 33 of the Income-tax Act, 2025 (section 32 of the Income-tax Act, 1961)
• Standard business deductions (rent, salaries, operational expenses)

Irrevocability Warning

Once you file Form 10-IC before the due date of your income tax return for the first year of opting in, you cannot switch back to the regular regime. Ever. This is not a year-by-year choice — it is permanent.

MAT Credit — The 15-Year Carry Forward

Under section 206(1)(m), the excess of MAT over regular tax creates a credit that can be carried forward for 15 tax years (section 206(1)(o)(ii)). This credit is utilized in years when your regular tax liability exceeds MAT.

Practical Calculation Example

Year 1 (FY 2024-25): Meridian Tech Pvt Ltd (a Singapore-owned Indian subsidiary) has taxable income of INR 40 lakh and book profits of INR 75 lakh.

• Regular tax (25% + 4% cess): INR 40 lakh x 26% = INR 10.40 lakh
• MAT (15% + 4% cess): INR 75 lakh x 15.6% = INR 11.70 lakh
• Tax payable: INR 11.70 lakh (MAT is higher)
• MAT credit generated: INR 11.70 - 10.40 = INR 1.30 lakh

Year 2 (FY 2025-26): Business grows. Taxable income rises to INR 80 lakh, book profits to INR 90 lakh.

• Regular tax: INR 80 lakh x 26% = INR 20.80 lakh
• MAT: INR 90 lakh x 15.6% = INR 14.04 lakh
• Regular tax exceeds MAT — company uses INR 1.30 lakh MAT credit from Year 1
• Net tax payable: INR 20.80 - 1.30 = INR 19.50 lakh

The credit vanishes if the company opts for section 200. With INR 1.30 lakh of accumulated MAT credit, that might be acceptable. But a company with INR 5 crore of accumulated MAT credit from years of SEZ operations should think twice before switching.

Which Regime Is Better for Foreign Subsidiaries?

Choose Section 200 (22% / 25.17% Effective) if:

• Your company is newly incorporated — you have no accumulated MAT credit or legacy deductions to lose
• You have no SEZ unit carrying a grandfathered section 144 deduction
• Your R&D expenditure does not qualify for deduction under section 45
• You want predictable tax costs — no MAT calculations, no book profit adjustments, no credit tracking
• Your parent company wants simplified transfer pricing compliance — fewer deductions means simpler documentation
• You are a services company with limited capital investment (little depreciation to shelter income)

Choose Regular Regime (with MAT Floor) if:

• You run an SEZ unit that began under section 10AA of the Income-tax Act, 1961 and still has years left in its original window — the grandfathered deduction under section 144 of the Income-tax Act, 2025 alone can save INR 2.5 crore+ on INR 10 crore of export profits. A unit set up now gets nothing: section 144 admits no new entrants.
• You have significant R&D expenditure qualifying for deduction under section 45(2)
• You have accumulated MAT credit of INR 50 lakh or more that you plan to utilize within 15 years
• Your company carries large depreciation under section 33 on new plant and machinery (manufacturing companies investing heavily in capex)
• Your effective tax rate after all deductions falls below 22% — the regular regime with deductions beats section 200

Common Mistakes

• Opting for section 200 without calculating the value of existing MAT credit. A company with INR 3 crore of accumulated MAT credit loses it permanently on switching. Run the 15-year utilization model first. If you can use the credit within 5-7 years, staying on the regular regime may save more than the lower section 200 rate.
• Confusing MAT rate with effective tax rate. MAT is 15% on book profits, but with surcharge (7-12%) and 4% cess, the effective MAT rate ranges from 15.6% to 17.5%. Similarly, the 22% rate under section 200 is actually 25.17% after surcharge and cess. Always compare effective rates, not headline rates.
• Assuming MAT applies to all companies. Companies that have opted for section 200, or for section 201 (Table, Sl. No. 1) read with section 205(2) of the Income-tax Act, 2025 (section 115BAB of the Income-tax Act, 1961) — 15% for new manufacturing companies set up on or after 1 October 2019 that commenced production on or before 31 March 2024, a scheme now closed to later entrants — are exempt from MAT entirely under section 206(1)(q)(ii). Also, foreign companies (non-domestic) paying tax on a presumptive basis are exempt per Budget 2026 updates.
• Filing Form 10-IC after the ITR due date. The option to switch to section 200 must be exercised by filing Form 10-IC before the due date of the income tax return (typically 31 October for companies requiring tax audit). Filing it late means you are stuck on the regular regime for that year — and the missed year's MAT calculation applies.
• Not modelling the break-even point. For a company with deductions worth INR 2 crore annually, the regular regime (25% on reduced income) may produce a lower effective rate than section 200 (25.17% on full income). The crossover point depends on your specific deduction mix — run both calculations for 5 years forward before deciding.

Practical Example

StellarBridge GmbH, a German industrial automation company, incorporates a Private Limited subsidiary in India. The subsidiary will manufacture sensors at a factory in Pune (not an SEZ) with initial revenue of INR 50 crore and pre-tax profit of INR 8 crore.

Option A — Regular Regime with MAT:

• Taxable income after deductions (section 33 depreciation of INR 2 crore, section 45 scientific-research deduction of INR 1 crore): INR 5 crore
• Regular tax: INR 5 crore x 26% = INR 1.30 crore
• Book profit (per P&L): INR 8 crore
• MAT: INR 8 crore x 15.6% = INR 1.25 crore
• Tax payable: INR 1.30 crore (regular tax is higher — no MAT credit generated)
• Effective rate on book profit: 16.25%

Option B — Section 200:

• No section 45 scientific-research deduction. Taxable income: INR 8 crore (approximately, after standard depreciation only)
• Tax: INR 8 crore x 25.17% = INR 2.01 crore
• Effective rate on book profit: 25.17%

Result: For StellarBridge, the regular regime saves INR 71 lakh annually because the R&D and depreciation deductions reduce taxable income significantly. But if the company had no R&D (say it was a pure trading company importing and distributing sensors), taxable income would roughly equal book profit, and the section 200 rate of 25.17% would beat the regular regime's 26-34.9% rate.

The rule of thumb: If your annual deductions and exemptions reduce taxable income by more than 15-20% relative to book profits, the regular regime (even with MAT as a floor) likely produces lower total tax over 5 years. If your deductions are minimal, section 200 wins immediately.

Key Takeaways

• MAT at 15% (effective 15.6-17.5%) on book profits acts as a floor — you pay it whenever your regular tax falls below this amount.
• Section 200 offers 22% (effective 25.17%) with no MAT, no exemptions, and no going back once the option is exercised — section 200(6) bars withdrawal.
• New foreign subsidiaries without SEZ, R&D, or legacy deductions should almost always choose section 200 — it is simpler and produces a predictable 25.17% rate.
• Existing companies with accumulated MAT credit should model the credit utilization timeline before switching — forfeiting INR 3-5 crore of credit is expensive.
• Section 201 (Table, Sl. No. 1) read with section 205(2) — section 115BAB of the Income-tax Act, 1961 — set a 15% rate (effective 17.16%) for new manufacturing companies set up on or after 1 October 2019, but the scheme has closed: production had to commence on or before 31 March 2024, so later entrants default to the section 200 rate of 22%.
• Always compare effective rates (after surcharge and cess), not headline rates. The difference between 22% and 25.17% catches many first-time filers off guard.

Choosing the right tax regime is one of the first decisions your Indian subsidiary makes — and one of the few that cannot be reversed. Beacon Filing's corporate tax filing team models both scenarios with your actual financials before you file Form 10-IC.