In this article, we will analyse the Minimum Alternative Tax ("MAT") credit overview. The analysis will be done as follows:
- Historical evolution of MAT
- MAT in Income Tax Act ("Act") 1961.
- Budget implications & New Act
- Way forward
Let us take the first segment of the history of the evolution of MAT
Years prior to 1990, large profitable companies were showing high book profits, declaring dividends, and paying zero or low income tax, called zero-tax companies. MAT came in the year 1987 because big companies legally avoided tax by using Section 80 deductions and investment allowances. A large conglomerate that did this was Reliance Industry, which was claiming heavy allowances deductions but paid no tax; therefore, the department had the view that companies had to pay minimum tax. However, the 1990 MAT concept was vanished by the government. In 1990 the government withdrew MAT but reintroduced it in the year 1996.
The Finance Act 1996 through 115JA was reintroduced. Then it evolved through 115JB in 2001.
MAT is based on the ability-to-pay principle. The paradigm shift from taxable income to book profits.
This concept applies for companies. For other entities it will be called the alternative minimum tax ("AMT"). This AMT draws parallel inferences to US taxation in the regulation paper.
The concept is that companies compute tax as per the regular scheme. They also compute tax on book profit. Whatever is excess, they claim credit. The credit was initially for 7 years and extended to 10 years in 2010. In the Finance Act 2017, it was extended to 15 years. The excess credit claimed by the company will be filed through form 29b. The same will be certified by a chartered accountant. From 2007, MAT credit can be carried forward for 15 years. The rate from 2017 is 15%; erstwhile it was 18.5%.
The legislature intended that the company should pay minimum tax and make no investment allowances, which would defeat the purpose of the law.
Let us take the 2nd segment - MAT in the Income Tax Act
MAT is governed by 115JB, where companies have to pay tax as per normal provisions of tax or 15% of book profit, whichever is higher.
MAT in the case of IFSC companies is at 9%.
MAT is not applicable for insurance companies, banking companies, or electricity companies. It also does not apply for foreign company offers under presumptive taxation. Also, it does not apply to a foreign company of a class where a resident of the country or specified territory with India has a DTAA; such a foreign company does not have a permanent establishment in India. Also, for a foreign country resident of a country with which India does not have a DTAA, a foreign company is not required to seek registration. MAT does not apply to domestic companies opting for the new regime.
The computation of MAT is a separate legal entity that has no link with regular tax provisions. A key aspect is that penalty interest will not be disallowed. Also, provision for gratuity, leave salary, and provision for warranty shall not be added if it is made as per actuarial valuation or scientific basis.
In the case law of CIT vs. Rolta India Ltd., interest under 234B is applicable even when tax is payable under MAT (115JB).
Even when MAT applies, transfer pricing applies.
Came in the year through the Finance Act 1996, like the introduction stage. The growth phase was in 2006 when the scheme got extended to 10 years. The maturity phase was in 2017, where the scheme got extended to 15 years, the rate was reduced to 15%, and relaxation was given to foreign companies. Then 2019 saw a paradigm shift, with companies in the new scheme having no MAT option. The decline stage was seen in Budget 2026, where MAT credit will be ending on 31st March 2027, where ¼ of the tax can only be claimed as credit. So a product life cycle can be made.
Budget Implications - Stage 3
MAT paid under the old corporate tax regime is to be treated as a final tax with no further MAT credit allowed. The MAT rate was reduced to 14 percent of book profits from the existing 15 percent. MAT credit setoff will now be allowed only to domestic companies opting for the new regime after 1st April 2026.
MAT is now 14% of book profit instead of 15% book profit.
MAT credit setoff will be allowed to domestic companies opting for the new regime after 1st April 2026. This credit would be restricted to 25 percent of the tax liability, and the balance credit would be allowed to carry forward and set off up to the 15th year immediately succeeding the tax year in which the tax credit became allowable.
However, foreign companies shall continue to take credit. Even ship operators and nonresidents of other categories are proposed to be exempt from MAT.
If a company is opting for a new scheme, then no issues. But if a company has been using the old scheme till 2026-27, then they have to be cautious.
For example, say in the old scheme for FY 2026-27, it means AY 2027-28. Let us clarify and analyze.
Say a company is in an old scheme. The book profit for AY 2026-27 is 100 crores, and the MAT is 14%. Now the MAT liability is 14 crores. The MAT liability is Rs 14 crores. Say MAT liability from previous years is there; the same cannot be carried forward. Now MAT is payable for Rs 14 crores.
Say a company switches to a new tax scheme under the new regime of 100 crores. The liability is 22%, which means Rs 22 crores. Mat credit usable is 22 crores * 25%. The MAT which means 5.5 crores. Credit available is 5 crores; therefore, the tax is 22 crores - 5 crores = 17 crores.
Under the old regime post-Budget 2026, MAT is final → no new credit accrues.
Existing MAT credit is only usable if switching to the new regime, subject to 25% of the current year's tax.
Companies need to evaluate switching to maximize utilization of old MAT credits.
Way forward
The MAT saga comes to an end. Now only companies will follow the new regime by default. But the Form 29B certification by CA will no longer be there, but instead opportunities never fade; still advisory or tax planning work can be done. But MAT may go away, but India is trying to convert MAT into a pillar two solution.
With BEPS Pillar Two enforcing a 15% global minimum tax on large MNE groups, many Indian companies paying MAT are discovering an uncomfortable reality. Paying MAT at 15% today does NOT automatically mean Pillar Two compliance. Because under current law, MAT is creditable. From an OECD GloBE perspective, this makes MAT a temporary tax, not a final one. As a result, it is often treated like deferred tax, leading to effective tax rates below 15% and triggering top-up taxes in foreign jurisdictions.
In simple terms: India collects MAT today but other countries may collect the Pillar Two top-up tomorrow. The policy shift of making MAT as the final tax: By making MAT as final and non-creditable (no MAT credit carry-forward): MAT becomes a true "covered tax" under Pillar Two GloBE ETR moves closer to 15%. Foreign top-up tax leakage is largely prevented. India protects its own tax base. Effectively, MAT would start functioning like a Domestic Minimum Top-Up Tax (DMTT), without formally introducing a new Pillar Two regime.
I feel MAT may fade, but the government may try to convert it into pillar 2 reporting.
Is India converting MAT into its Pillar Two solution? With BEPS Pillar Two enforcing a 15% global minimum tax on large MNE groups, many Indian companies paying MAT are discovering an uncomfortable reality! Paying MAT at 15% today does NOT automatically mean Pillar Two compliance. Why? Because under the current law, MAT is creditable. From an OECD GloBE perspective, this makes MAT a temporary tax, not a final one. As a result, it is often treated like deferred tax, leading to effective tax rates below 15% and triggering top-up taxes in foreign jurisdictions. In simple terms: India collects MAT today but other countries may collect the Pillar Two top-up tomorrow. The policy shift of making MAT as the final tax: By making MAT as final and non-creditable (no MAT credit carry-forward): MAT becomes a true "covered tax" under Pillar Two GloBE ETR moves closer to 15%. Foreign top-up tax leakage is largely prevented because India protects its own tax base. Effectively, MAT would start functioning like a Domestic Minimum Top-Up Tax (DMTT) without formally introducing a new Pillar Two regime.
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