The Income-tax Act, 2025 has retained the framework of Minimum Alternate Tax (MAT) for companies and Alternate Minimum Tax (AMT) for non-corporate taxpayers, while introducing important changes in the treatment of tax credits.
The provisions are contained in Section 206 of the Income-tax Act, 2025. MAT is designed to ensure that companies with substantial book profits do not end up paying little or no tax because of deductions, exemptions and other tax concessions.
What is MAT under the Income Tax Act 2025?
MAT applies to companies where the tax payable under the normal provisions of the Income-tax Act is lower than the prescribed percentage of their book profit.
Under Section 206, the company's tax liability is effectively compared under two methods:
- Tax calculated under the normal provisions; and
- MAT calculated at 14% of book profit, along with applicable surcharge and health and education cess.
The higher of the two amounts becomes the company's tax liability.
For companies located in an International Financial Services Centre (IFSC) and deriving income solely in convertible foreign exchange, MAT is applicable at 9%, plus applicable surcharge and cess.
When does MAT apply?
A company becomes liable to MAT when the income-tax payable on its total income under the normal provisions is less than 14% of its book profit, after considering applicable surcharge and health and education cess.
However, certain taxpayers are outside the MAT framework. These include specified domestic companies opting for alternative tax regimes, companies engaged in life insurance business covered by the specified provisions, and shipping companies whose income is subject to tonnage taxation.
Certain foreign companies can also remain outside MAT subject to the conditions specified under the Act, including treaty-related conditions and the absence of a permanent establishment in India.
How is book profit calculated for MAT?
Book profit is not simply the net profit appearing in a company's financial statements.
Under Section 206, book profit starts with the net profit shown in the statement of profit and loss prepared in accordance with Schedule III of the Companies Act, 2013. Certain prescribed items are then added back or deducted to arrive at the book profit for MAT purposes.
The adjustments can include items such as:
- Income-tax paid or payable;
- Amounts transferred to reserves;
- Provisions for unascertained liabilities;
- Provisions for losses of subsidiaries;
- Dividends paid or proposed;
- Depreciation;
- Deferred tax and related provisions; and
- Certain other prescribed gains, losses and expenditures.
Corresponding deductions are also available for specified items credited to the profit and loss account, subject to the conditions prescribed under Section 206.
Special rules for Ind AS-compliant companies
Companies following Indian Accounting Standards (Ind AS) have additional adjustments while computing book profit for MAT.
The calculation takes into account specified items recognised through Other Comprehensive Income (OCI), including certain revaluation gains or losses and fair-value movements.
Certain transition adjustments arising when a company moves from existing Indian GAAP to Ind AS are also required to be considered over a five-year period, subject to specified exclusions.
This makes the MAT computation particularly important for companies whose financial statements contain significant OCI, fair-value or revaluation adjustments.
A major change: No fresh MAT credit under the Income Tax Act 2025
One of the important points under the new law concerns MAT credit.
Under the repealed Income-tax Act, 1961, excess MAT paid over normal tax could generally generate MAT credit. Under the Income-tax Act, 2025, no new MAT credit will accrue when MAT exceeds the tax payable under the normal provisions.
However, MAT credit accumulated under Section 115JAA of the repealed Income-tax Act, 1961 can continue to be carried forward and utilised by specified taxpayers, including foreign companies and domestic companies shifting to specified concessional tax regimes.
For eligible domestic companies, the set-off of accumulated MAT credit under the concessional regime is restricted to 25% of the tax payable on total income in the relevant year.
What happens to MAT credit when a company converts into an LLP?
The Act also addresses conversion of companies into LLPs.
Where a private company or an unlisted public company converts into an LLP, the MAT credit of the company cannot be carried forward by the successor LLP because an LLP is not covered by the MAT provisions. Consequently, the MAT credit lapses on such conversion.
AMT for non-corporate taxpayers
While MAT applies to companies, Alternate Minimum Tax (AMT) applies to specified non-corporate taxpayers.
AMT generally becomes relevant where a non-corporate taxpayer claims specified deductions under the Income-tax Act. For individuals, HUFs, AOPs, BOIs and artificial juridical persons, the provisions apply where the adjusted total income exceeds Rs. 20 lakh, subject to the conditions prescribed.
Certain taxpayers opting for specified concessional tax regimes and specified funds are outside the AMT provisions.
AMT rate under Income Tax Act 2025
The standard AMT rate for a non-corporate taxpayer is 18.5% of adjusted total income, plus applicable surcharge and health and education cess.
For a non-corporate assessee that is a unit in an IFSC and derives income solely in convertible foreign exchange, AMT is applicable at 9%.
For a co-operative society, the AMT rate is 15%.
Like MAT, the taxpayer effectively pays the higher of:
- Tax calculated under the normal provisions; or
- AMT calculated at the prescribed rate on adjusted total income.
AMT credit can be carried forward
Where AMT paid exceeds the tax liability under the normal provisions, the excess can become AMT credit.
The credit can subsequently be utilised in a year when the taxpayer's normal tax liability exceeds the AMT liability. However, the adjustment is limited to the difference between normal tax and AMT.
AMT credit can generally be carried forward for 15 tax years. Any credit that remains unutilised after the prescribed period lapses, and no interest is payable on such credit.
CA reporting requirements under MAT and AMT
The new framework also places reporting responsibilities on chartered accountants.
A company to which Section 206 applies is required to obtain a report from a chartered accountant in Form No. 66, certifying the computation of book profit in accordance with the prescribed provisions.
For non-corporate taxpayers to whom AMT applies, a chartered accountant's report in Form No. 67 is required within the prescribed timeline.
What taxpayers and professionals should watch
The MAT and AMT provisions under the Income-tax Act, 2025 require taxpayers to look beyond their regular income-tax computation.
For companies, the computation of book profit and the treatment of MAT credit are particularly important. For non-corporate taxpayers, identifying deductions that trigger AMT and correctly determining adjusted total income can directly affect the final tax liability.
With MAT at 14% for specified companies and AMT at 18.5% for applicable non-corporate taxpayers, professionals should carefully review the Section 206 provisions while finalising tax computations under the new law.
CAclubindia
