MAT Minimum Alternate Tax Under ITA 2025: Book Profit, 15% Rate and Computation

Minimum Alternate Tax (MAT) ensures that companies with significant accounting profits pay at least a minimum level of tax, even if their taxable income under normal provisions is low or nil. Under ITA 2025, MAT is levied at 15% of Book Profit for domestic companies.

Why MAT Exists

Without MAT, companies could reduce taxable income to nil through incentives (deductions, exemptions, accelerated depreciation) while showing high profits in financial statements. MAT prevents zero-tax situations for profitable companies.

Rate and Applicability

• MAT rate: 15% of Book Profit (plus surcharge + cess)
• Applicable to: Indian domestic companies (not applicable to new manufacturing companies opting for 15% concessional rate under Section 115BAB)
• MAT applies when: Tax under normal provisions < 15% of Book Profit
• Companies opting for Section 115BAB (new manufacturing, 15% flat) are exempt from MAT

What is "Book Profit"?

Book profit starts with net profit from the Statement of Profit and Loss (P&L) and then several items are added back / deducted:

Additions to Net Profit (to get Book Profit)

• Income tax provision
• Deferred tax provision (net)
• Provision for unascertained liabilities
• Reserves other than those used for dividend/business
• Provisions for doubtful debts/investments

Deductions from Net Profit

• Amount withdrawn from reserves credited to P&L
• Income exempt from tax (e.g., LTCG on sale of agricultural land)
• Depreciation per books (add back) → then deduct depreciation as per IT Act
• Deferred tax liability written back

MAT Credit — Carry Forward

When MAT is paid (exceeding normal tax), the difference is called MAT Credit. This credit can be carried forward for 15 Tax Years and set off against normal tax (when normal tax exceeds MAT in a future year).

AMT — Alternative Minimum Tax for Non-Companies

For individuals, HUFs, firms, and LLPs claiming certain deductions (Chapter VI-A), an Alternative Minimum Tax (AMT) of 18.5% of Adjusted Total Income applies if regular tax is lower. AMT credit works similarly to MAT credit (15-year carry forward).

Companies Exempt from MAT

• Companies with income solely from shipping (tonnage tax)
• Foreign companies with income from royalties/FTS under DTAA if no PE in India
• New manufacturing domestic companies under Section 115BAB