Section 206 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 206 makes sure that a company whose regular tax is lower than a minimum amount computed on its book profit still pays that minimum, and applies an alternate minimum tax to persons other than companies who claim certain deductions. This article explains the section as per the Income-tax Act, 2025 as amended by the Finance Act, 2026. Later amendments, the Income-tax Rules, 2026 and notifications should be checked separately.
Under section 206(1), if a company's tax on its total income is less than the minimum alternate tax, the book profit is deemed to be its total income and it pays the minimum alternate tax, at 14% of book profit (9% for an International Financial Services Centre unit earning solely in convertible foreign exchange). Under section 206(2), a person other than a company pays alternate minimum tax on adjusted total income at 18.5% (15% for a co-operative society, 9% for such an IFSC unit) if that is more than the regular tax. Sub-sections (3) and (4), substituted by the Finance Act, 2026, deal with credit brought forward.
What the Finance Act, 2026 changed in section 206
If you need help working through the computation, our books of accounts compliance service prepares the books it starts from. The footnotes print these changes, each w.e.f. 1-4-2026.
- Section 206(1)(b)(ii): the rate for any other company is 14%; the footnote says it was substituted for "15%".
- Section 206(1)(i)(ii): substituted; it now refers to credit of tax paid under section 115JAA of the Income-tax Act, 1961 not utilised in any subsequent tax year ending on or before 31 March 2026.
- Section 206(1)(l)(iii): the words referring to serial numbers 1, 3, 4 and 5 of a Table omitted.
- Section 206(1)(m) to (p) and (r): omitted.
- Section 206(1)(q) and (s): wording changed from "section" to "sub-section".
- Sub-sections (3), (4) and (5) substituted for the former sub-section (3).
Section 206(1): minimum alternate tax on companies
Clause (a). Where the income-tax payable by a company on its total income for a tax year is less than the minimum alternate tax for that year, (i) the book profit is deemed to be the total income and (ii) the company pays income-tax equal to the minimum alternate tax.
Clause (b). Minimum alternate tax is tax computed on the book profit at 9% for a company that is a unit in an International Financial Services Centre and derives its income solely in convertible foreign exchange, and at 14% for any other company.
Clause (c): book profit. Book profit starts with the profit shown in the statement of profit and loss prepared as per clause (f). It is increased by items debited to that statement, such as income-tax paid or payable, amounts carried to reserves, provisions other than for ascertained liabilities, dividends paid or proposed, depreciation and deferred tax. It is reduced by items credited to it, such as amounts withdrawn from reserves, section 11 income, deferred tax and the lower of brought forward loss (excluding depreciation) and unabsorbed depreciation. Clause (d): further adjustments. These cover members of an association of persons or body of individuals; foreign companies with certain capital gains, interest, dividend, royalty or fees taxed at less than the clause (b) rate; transfers of special purpose vehicle shares to a business trust; patent royalty under section 194(1); and companies under a superseded Board, in insolvency resolution or sick industrial companies, which refer to the Companies Act, 2013, the Insolvency and Bankruptcy Code, 2016 and the Sick Industrial Companies (Special Provisions) Act, 1985 (please check those laws). A Table adjusts companies following the Indian Accounting Standards, including one-fifth of the transition amount in the year of convergence and each of the next four tax years.
Clauses (f) to (k). The statement is prepared as per the enactment governing an insurance, banking or electricity company, or otherwise per Schedule III to the Companies Act, 2013, with the accounting policies, standards and depreciation methods adopted for the accounts laid before the annual general meeting. Where book profit rises because of past-year income under an advance pricing agreement (section 168) or a secondary adjustment (section 170), the Assessing Officer, on application, recomputes it, with section 287 applying; no interest is payable on that refund. Carry forward under sections 33(11), 111, 112(1), 113 and 115 is not affected.
Clauses (l), (q), (s). Sub-section (1) does not apply to three kinds of foreign company: a treaty-country resident with no permanent establishment in India; a resident of a non-treaty country that need not register under company law; and one with income solely from the business in section 61(2) offered at the rates in the respective sections. It also does not apply to a company with life insurance income referred to in section 194(1) (Table: serial number 6), or to a person who has exercised the option under section 200(5) or 201(2). A company to which it applies furnishes an accountant's report in the prescribed form (detail left to the Income-tax Rules, 2026) before the specified date in section 63, or with the return filed on a notice under section 268(1).
Section 206(2): alternate minimum tax
Where the regular income-tax of a person other than a company is less than the alternate minimum tax, the adjusted total income is deemed to be the total income and the person pays the alternate minimum tax.
| Item | What section 206(2) prints |
|---|---|
| Adjusted total income | Total income, increased by deductions claimed under Chapter VIII-C (other than section 149) and under section 46 (reduced by depreciation allowable under section 33) |
| Rate: IFSC unit earning solely in convertible foreign exchange | 9% |
| Rate: co-operative society | 15% |
| Rate: any other case | 18.5% |
| Applies to | A person who has claimed a Chapter VIII-C deduction (other than section 149) or a section 46 deduction |
| Does not apply to | A person who exercised the option under section 203(5) or 204(2); a person taxed under section 202(1); an individual, HUF, AOP, BOI or artificial juridical person whose adjusted total income does not exceed twenty lakh rupees; a specified fund in Schedule VI (Note 1) |
Clauses (e) to (h) give credit for the excess of alternate minimum tax over regular income-tax. No interest is payable on it, and it is set off in a year when regular income-tax exceeds the alternate minimum tax, to the extent of that excess, not beyond the fifteenth tax year after the year it becomes allowable. An order changing the tax changes the credit. Clause (j) requires an accountant's report. See also Schedule VI.
Section 206(3), (4) and (5): credit brought forward
- Domestic company (3). Only for one that has exercised the option under section 200(5) or 201(2) for a tax year beginning on or after 1 April 2026. Credit allowed to be carried forward under section 115JAA of the Income-tax Act, 1961 as on 31 March 2026 may be set off up to 25% of the tax payable on total income under the other provisions; the rest is carried forward, never beyond the fifteenth tax year after the year the credit first became allowable.
- Foreign company (4). Such credit is set off in a tax year when tax payable on total income exceeds the minimum alternate tax under sub-section (1), to the extent of the difference, within the same fifteenth-year limit.
- (5). Subject to this section, all other provisions of the Act apply.
Credits do not pass to a successor limited liability partnership on conversion. For returns, see section 266.
A worked example
All amounts are assumed. Alpha Textiles Private Limited has book profit of Rs. 50,00,000 and tax of Rs. 5,00,000 on its total income under the other provisions. Minimum alternate tax at 14% is Rs. 7,00,000, which is more than Rs. 5,00,000, so the company pays Rs. 7,00,000.
Rahul and Associates, assumed to be an association of persons that claimed a Chapter VIII-C deduction, has adjusted total income of Rs. 25,00,000, above the twenty lakh limit. Alternate minimum tax at 18.5% is Rs. 4,62,500. If regular income-tax is Rs. 4,00,000, it pays Rs. 4,62,500 and the excess of Rs. 62,500 is credit carried forward under clauses (e) to (g).
Need help with section 206?
Book profit and the accountant's report depend on clean books and the right option. Our books of accounts compliance service can organise them, and our tax planning advisory team can look at which options in sections 200, 201 and 203 to 205 fit.
Key takeaways
- Minimum alternate tax is 14% of book profit (9% for the IFSC unit described); the Finance Act, 2026 substituted this for 15%, w.e.f. 1-4-2026.
- Clauses (m) to (p) of sub-section (1) were omitted w.e.f. 1-4-2026; credit under section 115JAA of the 1961 Act as on 31 March 2026 is dealt with in sub-sections (3) and (4).
- Alternate minimum tax is 18.5% (15% for co-operative societies, 9% for the IFSC unit).
Read next
- Section 202: the new tax regime for individuals, HUFs and others
- Section 200: the company tax regime
- Sections 203 and 204: resident co-operative societies
- Section 63: tax audit
- Section 266: self-assessment and the order of adjustment
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.