Key Highlights
- MAT under Section 206, Income Tax Act, 2025 (corresponds to Section 115JB of ITA 1961)
- MAT Rate: 15% of book profit (plus surcharge and cess)
- MAT applies when normal tax < 15% of book profit
- MAT Credit: paid MAT can be carried forward for 15 years and set off when normal tax exceeds MAT
- Alternative Minimum Tax (AMT) for non-company taxpayers (individuals, LLPs, firms) under Section 207
- Companies opting for concessional rate under Section 200 (22%) are exempt from MAT
- Foreign companies also subject to MAT on their Indian book profits
1. Overview
MAT — Minimum Alternate Tax — was introduced to address a situation where profitable companies were paying little or no income tax by claiming various deductions, exemptions, and incentives. A company could show book profits of ₹100 crore in its Profit & Loss account, yet pay zero tax because of accumulated losses, depreciation, or tax incentives.
MAT ensures every company pays at least 15% tax on its book profit (as per the financial statements), regardless of how many deductions it claims in its normal tax computation. Under the Income Tax Act, 2025, MAT is codified under Section 206, replacing Section 115JB of the old Act.
2. When Does MAT Apply?
MAT applies when a company's normal income tax liability (computed under regular slab/rate provisions) is less than 15% of its book profit. In that case, the company pays MAT at 15% of book profit instead of normal tax.
Formula: Tax Payable = Higher of [Normal Tax] or [15% × Book Profit]
3. What is Book Profit?
Book profit for MAT purposes is the net profit as per the Profit & Loss account prepared under the Companies Act, 2013, with specified adjustments under Section 206 of ITA 2025. Key additions to book profit:
- Income tax provision charged in P&L
- Dividend paid or proposed
- Depreciation charged in P&L (replaced by depreciation as per IT Act)
- Reserves and provisions carried in excess of statutory requirements
Key deductions from book profit:
- Depreciation as per IT Act (Schedule XIII of ITA 2025)
- Brought-forward book losses (lower of: accumulated losses or unabsorbed depreciation)
- Profits of sick companies
4. MAT Rate and Effective Rate
| Company Type | MAT Rate | Surcharge | Cess | Effective MAT Rate |
|---|---|---|---|---|
| Domestic company (general) | 15% | 7% (profits 1-10 crore); 12% (>10 crore) | 4% | ~17.01% |
| Foreign company | 15% | 2% (profits 1-10 crore); 5% (>10 crore) | 4% | ~16.38% |
5. Companies Exempt from MAT
- Companies opting for the concessional tax rate under Section 200 (22% rate) — Section 200 companies are fully exempt from MAT
- New manufacturing companies under Section 201 (15% rate) — also exempt from MAT
- Companies engaged in infrastructure activities (specific exemption under ITA 2025)
- Foreign companies with no permanent establishment in India (subject to DTAA provisions)
6. MAT Credit: Section 208
When a company pays MAT in excess of its normal tax, the excess becomes a MAT Credit which can be carried forward and set off against normal tax in future years when normal tax exceeds MAT.
- MAT Credit = MAT paid − Normal tax paid (in the year MAT was applicable)
- MAT Credit is carried forward for a maximum of 15 Tax Years
- It is set off in the year when normal tax exceeds MAT, reducing the normal tax liability by the MAT Credit balance
Example (Illustrative only): In Tax Year 2026-27, ABC Ltd's normal tax = ₹50 lakh; MAT = ₹80 lakh. MAT Credit = ₹30 lakh. In Tax Year 2027-28, normal tax = ₹1 crore; MAT = ₹70 lakh. Normal tax payable after MAT Credit = ₹1 crore − ₹30 lakh = ₹70 lakh.
7. Alternative Minimum Tax (AMT): Section 207
AMT applies to non-corporate taxpayers (individuals, HUF, firms, LLPs, AOPs) who claim certain large deductions under Chapter VIII and thereby reduce their normal tax below 18.5% of Adjusted Total Income.
AMT applies when normal tax < 18.5% of Adjusted Total Income. AMT Rate = 18.5% of Adjusted Total Income (plus surcharge and cess).
Adjusted Total Income = Total income + deductions claimed under Sections 136, 138, and other specified sections of Chapter VIII (relating to business profits of certain industries).
For most regular salaried or business taxpayers claiming standard deductions like 80C, 80D, HRA — AMT generally does not apply. AMT is mainly relevant for taxpayers claiming large incentive deductions for SEZ units, infrastructure projects, or startups.
8. AMT Credit: Section 208
Similar to MAT Credit, AMT Credit can be carried forward for 15 Tax Years and set off when normal tax exceeds AMT in future years.
9. Latest Updates Under ITA 2025
- MAT now under Section 206 (was Section 115JB of ITA 1961)
- MAT rate remains 15% of book profit
- MAT exemption for Section 200/201 concessional rate companies confirmed in ITA 2025
- MAT Credit carry-forward period: 15 years (unchanged)
- AMT for non-corporates under Section 207 (was Section 115JC)
10. Why TaxClue
MAT computation requires careful analysis of book profits, adjustments under Section 206, and tracking of MAT credits across 15 years. TaxClue's corporate tax team handles MAT computation, book profit adjustments, MAT Credit tracking, and corporate ITR filing for Tax Year 2026-27. Contact us for complete corporate tax compliance.
11. Resources & Checklist
- ☐ Compute normal tax liability for the Tax Year
- ☐ Compute 15% of book profit for MAT comparison
- ☐ Pay higher of normal tax or MAT
- ☐ Compute and record MAT Credit for carry-forward
- ☐ Check if company is exempt from MAT (Section 200/201)
- ☐ File ITR-6 with MAT computation in Schedule MAT
12. Contact Us
MAT planning and compliance is a critical part of corporate tax strategy. TaxClue's experts ensure your company's MAT liability is correctly computed and credits are optimally utilised. Contact us for corporate tax advisory.