Minimum Alternate Tax (MAT)

What Is Minimum Alternate Tax (MAT)?

MAT stands for Minimum Alternate Tax, which applies when a company's normal income tax becomes very low or even zero because it has used deductions, exemptions, or tax incentives. Even though the tax bill looks small, the company may still be earning good profits, as shown in its profit and loss statement.

In such cases, the government calculates tax on the company's book profits (the profits shown in financial statements) instead of taxable income. This tax is called MAT.

In short:

• Normal tax < MAT → MAT becomes payable
• Normal tax ≥ MAT → Normal tax applies
• From 1 April 2026 onwards, this minimum tax is 14% of book profits.

Why was MAT Introduced?

The Minimum Alternate Tax (MAT) was introduced back in 1987 as a modest 5% levy. Many companies used the zero-tax loopholes -

• They earned substantial accounting profits,
• Used exemptions, incentives, and depreciation benefits extensively,
• Paid very small or no income tax on dividends.

This created a gap between reported profits and actual tax paid.

1. Core Objectives of MAT:

   The following are the key goals of MAT:

   • To ensure profitable companies contribute a minimum tax
   • To maintain fairness in the corporate tax system
   • To balance tax incentives with revenue certainty

2. Important Union Budget 2026 Update on MAT Credit:

   • MAT credit can be carried forward for up to 15 assessment years
   • Set-off is allowed only when the normal tax exceeds the MAT
   • Recent policy changes have restricted the effective use of MAT credit, especially for companies opting for the concessional old tax regime.

This is a significant shift and changes long-term tax planning strategies.

MAT under Section 115JB

MAT is governed by Section 115JB of the Income-tax Act, 1961. This section says that-

• Tax is to be computed on book profit, and not on taxable income.
• The book profit is derived from the company’s profit and loss account, subject to specified adjustments.

Who Should Pay MAT?

The applicability criteria of MAT are as per the following:

1. MAT is mandatorily applicable to:

   • Indian companies
   • Certain foreign companies with income linked to India

2. MAT DOES NOT Apply to:

   • Individuals
   • Non-Resident Indians (NRIs)
   • Hindu Undivided Families (HUFs)
   • Partnership Firms

3. MAT is also NOT Applicable to:

   • Companies opting for the old tax regime, where MAT is specifically excluded
   • Shipping companies and insurance companies (specific exclusions apply)
   • Certain foreign companies without a permanent establishment in India
   • Units located in International Financial Services Centres (IFSC), subject to conditions

MAT Rates in 2026

As per the latest Union Budget of 2026, the MAT rates are as follows:

Previous MAT Rates:

What Is Book Profit Under MAT?

Book profit is the profit figure shown in a company's profit and loss account, but with a few specific adjustments required by tax law. It is not the same as taxable income.

How is Book Profit Calculated?

The calculation starts with the net profit as per the profit and loss statement. This figure is then adjusted with small additions and reductions to arrive at the book profit for MAT purposes.

• Common additions include: Income tax already paid or payable, provisions for uncertain expenses, differences in depreciation between books and tax rules, or deferred tax assets.

• Common reductions include: Exempt income, like certain dividends, and losses brought forward or unabsorbed depreciation, if allowed.

The final number after these adjustments is the book profit, on which MAT is calculated. This makes sure companies pay at least some tax, even if deductions or exemptions lower their normal taxable income.

Illustration of Book Profit Adjustments:

Importance of Adjustments: These minor changes, while calculating the book profit, can significantly affect the MAT payable. Even a minor adjustment can increase or reduce tax liability by several lakhs, which is why accurate records and careful computation are essential.

How to Calculate MAT Amount?

The MAT is simply calculated in the following manner:

1. Calculate tax under normal income tax provisions
2. Compute book profit as per Section 115JB
3. Apply the MAT rate (14%) on the book profit
4. Compare both tax amounts
5. Pay the higher of the two

Example of MAT Calculation:

Final Tax Amount: Since MAT is higher, the company must pay ₹1.40 crore as tax.

What is MAT Credit in 2026?

MAT credit is a tax benefit given to companies that pay Minimum Alternate Tax (MAT) in a year when their normal income tax is lower.

1. MAT Credit Arises When:

   • MAT payable is higher than the normal income tax, and
   • The company pays MAT for that year

2. How MAT Credit Works:

   • In later years, if the company’s normal tax becomes higher than MAT, it can use the accumulated MAT credit to reduce its tax liability.
   • However, the set-off is allowed only to the extent of the difference between normal tax and MAT for that year.

Why MAT Credit is Losing Importance

Earlier, MAT credit was a strong tax-planning tool. But in 2026, MAT is less about tax collection and more about nudging companies toward a simpler new tax regime:

• Compliance complexity outweighs its benefits
• Many companies move to lower corporate tax regimes
• MAT is treated more like a final tax
• MAT credit utilisation opportunities are shrinking

Who Should Pay Attention to MAT?

MAT still matters if:

• You have large carried-forward MAT credits
• You operate in sectors with long depreciation cycles
• You are not eligible for concessional regimes
• You report strong book profits but volatile taxable income

For others, MAT is increasingly a transitional tax issue, not a permanent one.

What is the Difference Between MAT and AMT?

You often get confused between the Minimum Alternate Tax (MAT) and the Alternate Minimum Tax (AMT). They are both designed to make sure taxpayers pay a minimum level of tax, but they are applicable to different groups and work differently in the following ways:

Conclusion

Minimum Alternate Tax makes sure that companies earning good profits still pay some tax, even if their normal tax becomes very low. Over time, the tax system has become simpler, so MAT is not as important as it once was. Today, it mostly affects companies that continue under the old tax structure. For businesses, the real decision is choosing the right tax regime, not just calculating MAT.