By Manu Rao | Updated March 2026
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.
Under Section 115JB of the Income Tax Act 1961, if a company's tax liability computed under normal provisions is less than 15% of its "book profit," it must pay 15% of book profit as MAT instead. The effective MAT rate, after surcharge and cess, works out to approximately 17.47% for companies with income between INR 1 crore and INR 10 crores.
Legal Framework
- Section 115JB — Core MAT provision, defining book profit and the MAT rate
- Section 115JAA — MAT credit provisions (carry forward of excess MAT paid)
- Explanation 1 to Section 115JB — Adjustments to book profit (additions and deductions)
- Finance Act 2019 — Reduced MAT rate from 18.5% to 15% (effective from AY 2020-21)
Important Exemption
Companies that opt for the new tax regime under Section 115BAA (22% base rate) or Section 115BAB (15% base rate for manufacturing) are exempt from MAT. They do not need to compute book profit or worry about MAT at all. This is a major reason many companies switched to the new regime.
How Book Profit Is Computed
Book profit under Section 115JB 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 reserves (other than under Section 33AC)
- 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- Amounts withdrawn from reserves (if credited to P&L)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 exempt under Section 10, 11, or 12
- 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 115BAA and avoid MAT entirely — Since the new regime offers a lower rate (25.17% effective) without MAT computation, it is the default choice for subsidiaries of foreign multinationals.
- Companies in the old regime face MAT when claiming heavy deductions — A company claiming Section 80-IA benefits (SEZ, infrastructure) might reduce its normal tax below 15% of book profit. MAT kicks in to create a floor.
- Foreign companies (branches/PEs) are also subject to MAT — Section 115JB applies to all companies, including foreign companies assessed in India. A US company's Indian branch office pays MAT on its book profit.
- 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 115JAA)
The excess of MAT paid over normal tax liability is available as a credit in future years. How it works:
- 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).
- Year 2 — Normal tax: INR 12 lakhs. MAT: INR 9 lakhs. Normal tax exceeds MAT, so company pays normal tax. But it can set off the INR 3 lakh MAT credit. Net payment: INR 9 lakhs (12 minus 3).
MAT credit can be carried forward for 15 years from the year it was first generated. After 15 years, unused credit expires.
Critical Warning
If a company switches from the old regime to Section 115BAA, all accumulated MAT credit is permanently lost. There is no mechanism to carry it forward or refund it. Companies with large MAT credit balances should run the numbers carefully before switching regimes.
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 the Income Tax Act (Section 10) 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. MAT ensures this company pays at least INR 7.5 lakhs (15% of INR 50 lakhs) instead of just INR 2.5 lakhs (25% of INR 10 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 in the old regime 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 115JB is specific. Companies sometimes add or deduct items not prescribed, leading to incorrect book profit calculation.
- Switching to 115BAA without considering MAT credit — A company with INR 20 lakhs in accumulated MAT credit loses it entirely upon switching. The tax savings from the lower rate must exceed the lost credit to make the switch worthwhile.
- Not claiming MAT credit in the set-off year — MAT credit is not automatic — it must be actively claimed in the ITR. Companies sometimes forget to fill Schedule MATC and miss the set-off.
- Confusing MAT with AMT — Alternate Minimum Tax (AMT) under Section 115JC applies to individuals, firms, and LLPs. MAT under Section 115JB applies to companies. Different provisions, different computations.
Practical Example
A South Korean company owns an Indian subsidiary in Gujarat that manufactures auto parts. The company is in the old tax regime because it claims Section 80-IA benefits for its industrial undertaking. FY 2025-26 figures: 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: INR 10 lakhs (15 minus 5). This credit can be set off against normal tax in future years when it exceeds MAT — for up to 15 years.
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.