Minimum Alternate Tax (MAT)

What Is MAT?

Minimum Alternate Tax (MAT) is a floor on corporate tax. It exists because some companies — despite reporting substantial book profits in their audited accounts — pay little or no tax by claiming deductions, exemptions, and depreciation allowances under the Income Tax Act. MAT ensures every profitable company pays at least a minimum amount of tax. See our full MAT vs regular corporate tax comparison for a side-by-side of when each regime applies.

Under section 206(1) of the Income-tax Act, 2025 (section 115JB of the Income-tax Act, 1961), if a company's tax liability computed under normal provisions is less than the minimum alternate tax on its "book profit," it must pay the minimum alternate tax instead. From tax year 2026-27 the rate is 14% of book profit — the Finance Act 2026 cut it from 15% — with a 9% rate for a unit in an International Financial Services Centre deriving its income solely in convertible foreign exchange. Surcharge and cess apply on top.

For FY 2025-26 and earlier the 1961 Act continues to apply under the savings in section 536(2)(c) of the 2025 Act, so the rate for those years remains 15%, giving an effective rate of approximately 17.47% after surcharge and cess for companies with income between INR 1 crore and INR 10 crores.

Legal Framework

• Section 206(1) of the Income-tax Act, 2025 (section 115JB of the Income-tax Act, 1961) — Core MAT provision, defining book profit and the MAT rate
• Section 206(3) and (4) of the Income-tax Act, 2025 (section 115JAA of the Income-tax Act, 1961) — MAT credit. The 2025 Act generates no fresh MAT credit; these sub-sections only carry forward the credit standing as on 31 March 2026
• Section 206(1)(c) and (d) — Adjustments to book profit, additions and deductions (Explanation 1 to section 115JB of the 1961 Act for FY 2025-26 and earlier)
• Section 206(2) — Alternate Minimum Tax for persons other than companies (section 115JC of the Income-tax Act, 1961)
• Finance Act 2019 — Reduced the MAT rate from 18.5% to 15% (effective from AY 2020-21)
• Finance Act 2026 — Cut the MAT rate from 15% to 14% and omitted section 206(1)(m) to (p), the clauses that generated fresh MAT credit, with effect from 1 April 2026

Important Exemption

Companies that opt for the concessional regime under section 200 read with section 205(1) of the Income-tax Act, 2025 (section 115BAA of the Income-tax Act, 1961) — 22% base rate — or under section 201 (Table, Sl. No. 1) read with section 205(2) (section 115BAB of the Income-tax Act, 1961) — 15% base rate for manufacturing — are exempt from MAT under section 206(1)(q)(ii). They do not need to compute book profit or worry about MAT at all. This is a major reason many companies switched to the concessional regime.

How Book Profit Is Computed

Book profit under section 206(1) is not the same as accounting profit. You start with the net profit as per the profit and loss account prepared under the Companies Act 2013, then make prescribed adjustments:

Additions to Net Profit

• Income tax paid or payable (including deferred tax)
• Amounts carried to any reserves, by whatever name called — section 206(1)(c)(ii) carries no carve-out equivalent to the section 33AC shipping reserve exception in the 1961 Act
• Proposed dividend and tax on it
• Provisions for diminution in asset value
• Provisions for unascertained liabilities
• Depreciation debited to P&L (regular depreciation is added back; depreciation excluding revaluation is allowed as deduction)
• Deferred tax provision (if debited)

Deductions from Net Profit

• Amounts withdrawn from reserves (if credited to P&L)
• Income to which section 11 of the Income-tax Act, 2025 applies (the exemptions listed in Schedules II to VI), and the regular income of a registered non-profit organisation under section 335 — section 206(1)(c)(xii). For FY 2025-26 and earlier, income exempt under section 10, 11 or 12 of the Income-tax Act, 1961
• Depreciation excluding revaluation (lower of depreciation as per Companies Act or per section 350 of Companies Act 1956)
• Brought forward losses or unabsorbed depreciation (whichever is lower, as per books)
• Income from units in International Financial Services Centre (IFSC)

MAT for Foreign-Owned Companies

Here is where MAT intersects with foreign ownership:

• Most foreign-owned companies opt for the section 200 regime and avoid MAT entirely — Since that regime offers a lower rate (25.17% effective) without MAT computation, it is the default choice for subsidiaries of foreign multinationals.
• Companies outside the section 200 regime face MAT when claiming heavy deductions — A company claiming an infrastructure deduction under section 138 of the Income-tax Act, 2025 (section 80-IA of the Income-tax Act, 1961) might reduce its normal tax below the minimum alternate tax on book profit, and MAT kicks in to create a floor. Note that section 138 is a grandfathering provision: it continues a deduction only for undertakings that were already eligible under section 80-IA of the 1961 Act, and only for the tax years that section would have allowed.
• Foreign companies (branches/PEs) are also subject to MAT — Section 206(1) applies to companies generally, including foreign companies assessed in India, so a US company's Indian branch office pays MAT on its book profit. Section 206(1)(l) carves out a foreign company that is resident in a treaty country and has no permanent establishment in India, and a foreign company from a non-treaty country that is not required to register under Indian company law.
• DTAA interaction — Whether MAT paid in India qualifies for foreign tax credit in the home country depends on the specific DTAA. The India-US DTAA allows credit for "income tax" — MAT generally qualifies since it is part of the Income Tax Act.

MAT Credit (Section 206(3) and (4))

Under section 115JAA of the Income-tax Act, 1961 — the rule that governs FY 2025-26 and earlier — the excess of MAT paid over normal tax liability became a credit usable in future years. How it worked:

1. Year 1 — Normal tax: INR 5 lakhs. MAT: INR 8 lakhs. Company pays INR 8 lakhs (MAT). MAT credit: INR 3 lakhs (8 minus 5).
2. Year 2 — Normal tax: INR 12 lakhs. MAT: INR 9 lakhs. Normal tax exceeds MAT, so the company pays normal tax. But it can set off the INR 3 lakh MAT credit. Net payment: INR 9 lakhs (12 minus 3).

What Changed from Tax Year 2026-27

The Income-tax Act, 2025 as amended by the Finance Act 2026 generates no fresh MAT credit — section 206(1)(m) to (p), which created and carried forward the credit, was omitted. What survives is only the credit that stood to a company's account under section 115JAA of the 1961 Act as on 31 March 2026:

• Domestic companies — section 206(3). The brought-forward credit is available only to a domestic company that has exercised the option under section 200(5) or section 201(2) for a tax year beginning on or after 1 April 2026. It can be set off in any tax year to the extent of 25% of the tax payable on total income computed under the other provisions of the Act, with the balance carried forward.
• Foreign companies — section 206(4). The brought-forward credit is set off in a year when tax on total income exceeds the minimum alternate tax, limited to the difference between the two.
• Outer limit — both. Carry forward or set off is not allowed beyond the fifteenth tax year immediately succeeding the tax year in which the credit first became allowable under section 115JAA of the 1961 Act.
• LLP conversion. On conversion of a private or unlisted public company into an LLP, the credit does not pass to the successor LLP.

Critical Warning

The old planning point has reversed. Under the 1961 Act, switching to section 115BAA forfeited accumulated MAT credit. From tax year 2026-27, section 206(3) makes brought-forward 115JAA credit available only to a domestic company that has exercised the option under section 200(5) or section 201(2) — a domestic company that stays outside those regimes and keeps paying MAT under section 206(1) has no credit mechanism at all, because section 206(1)(m) to (p) has been omitted. Companies carrying material MAT credit balances should model both paths before the first return under the 2025 Act.

Book Profit vs Taxable Income — Why the Difference?

The divergence between book profit and taxable income occurs because:

• The Companies Act requires depreciation based on useful life of assets. The Income Tax Act allows accelerated depreciation at higher rates.
• Certain incomes are exempt under section 11 of the Income-tax Act, 2025 (section 10 of the Income-tax Act, 1961) but still appear in book profit.
• Provisions (like bad debt provision) are charged to P&L but not allowed as deductions until they become actual losses.
• Capital gains are taxed differently under the Act than they appear in books.

A company might show INR 50 lakhs book profit but only INR 10 lakhs taxable income due to heavy depreciation deductions. For tax year 2026-27, MAT ensures this company pays at least INR 7 lakhs (14% of INR 50 lakhs) instead of just INR 2.5 lakhs (25% of INR 10 lakhs). For FY 2025-26 the same computation at 15% gave a floor of INR 7.5 lakhs.

Deadlines

MAT computation is part of the regular income tax return filing. There is no separate filing for MAT. The company reports:

• Normal tax computation in Schedule BP of ITR-6
• MAT computation in Schedule MAT of ITR-6
• MAT credit brought forward and set off in Schedule MATC

The ITR filing deadline (October 31 or November 30, depending on TP applicability) applies.

Common Mistakes

• Not computing MAT at all — Companies outside the section 200 and section 201 regimes must compute MAT every year, even if they expect normal tax to be higher. The comparison between normal tax and MAT must be documented.
• Incorrect adjustments to book profit — The list of additions and deductions under section 206(1) is specific. Companies sometimes add or deduct items not prescribed, leading to incorrect book profit calculation.
• Still using 15% for tax year 2026-27 — The Finance Act 2026 cut the MAT rate to 14%. Returns and provisions computed at 15% for a tax year beginning on or after 1 April 2026 overstate the liability; 15% remains correct only for FY 2025-26 and earlier.
• Assuming a switch to section 200 still forfeits MAT credit — That was the position under the 1961 Act. From tax year 2026-27, section 206(3) makes brought-forward 115JAA credit available only to companies that have exercised the option under section 200(5) or section 201(2), capped at 25% of tax payable each year.
• Not claiming brought-forward MAT credit in the set-off year — Credit is not automatic. It must be actively claimed in the ITR, and the fifteen-year outer limit in section 206(3)(b)(iii) runs from the year the credit first became allowable under section 115JAA.
• Confusing MAT with AMT — Both now sit in one section of the Income-tax Act, 2025. MAT is section 206(1) and applies to companies (section 115JB of the 1961 Act). Alternate Minimum Tax is section 206(2) and applies to persons other than companies — individuals, firms and LLPs — at 18.5%, or 15% for a co-operative society and 9% for an IFSC unit (section 115JC of the 1961 Act). Same section, different sub-sections, different computations.

Practical Example

A South Korean company owns an Indian subsidiary in Gujarat that manufactures auto parts. The company has not opted into the concessional regime because it claims Section 80-IA benefits for its industrial undertaking. FY 2025-26 figures, governed by the Income-tax Act, 1961: Book profit (per audited P&L): INR 1 crore. Taxable income after 80-IA deduction: INR 20 lakhs. Normal tax at 25%: INR 5 lakhs. MAT at 15% of book profit: INR 15 lakhs. Since MAT exceeds normal tax, the company pays INR 15 lakhs. MAT credit generated under section 115JAA: INR 10 lakhs (15 minus 5).

From tax year 2026-27 the Income-tax Act, 2025 applies. The same book profit of INR 1 crore now attracts MAT at 14% — INR 14 lakhs — and no fresh MAT credit arises. The INR 10 lakh credit standing as on 31 March 2026 survives, but the company can use it only if it exercises the option under section 200(5) or section 201(2), and then only up to 25% of the tax payable in each year, with the fifteen-year outer limit running from the year the credit first became allowable.

Related Terms

• Corporate Tax — MAT is the floor on corporate tax
• Income Tax Return — MAT is computed in the ITR
• Statutory Audit — Book profit is based on audited accounts
• AOC-4 — Financials that form the basis of book profit

Deciding between old and new tax regime? Beacon Filing compares both scenarios including MAT credit impact for your company.