Minimum Alternate Tax (MAT): Comprehensive Overview and Key Changes under Finance Bill, 2026

Minimum Alternate Tax (MAT) has long been a cornerstone of India’s corporate tax framework, designed to ensure that companies reporting substantial book profits do not entirely avoid tax liability through exemptions and incentives. Over the years, MAT has evolved to balance revenue considerations with taxpayer certainty.

The Finance Bill, 2026 introduces significant structural changes to MAT, impacting tax rates, credit utilisation, regime choice, and applicability for specific categories of taxpayers.

1. What is Minimum Alternate Tax (MAT)?

Minimum Alternate Tax is a mechanism under section 115JB of the Income-tax Act that requires companies to pay a minimum level of tax on their book profits, even if their tax liability under the normal provisions is lower.

In simple terms:

• If normal tax > MAT → normal tax applies
• If MAT > normal tax → MAT applies

MAT ensures that companies benefiting from deductions, incentives, or exemptions still contribute a minimum amount to the tax exchequer.

2. Applicability of MAT

MAT is applicable to:

• Domestic companies
• Foreign companies (wherever MAT provisions apply)

MAT is generally not applicable to:

• Companies opting for certain presumptive taxation regimes
• Specific non-resident categories, as clarified in recent amendments

3. MAT Rate: Key Change under Finance Bill, 2026

Revised MAT Rate

The Finance Bill, 2026 proposes to reduce the MAT rate:

4. MAT Credit: Concept Explained Simply

When a company pays MAT instead of normal tax:

• The excess MAT paid over normal tax becomes MAT credit
• This credit can be carried forward and set off against future normal tax liability (subject to conditions)

MAT credit helps ensure that MAT does not become a permanent tax cost where a company later becomes taxable under normal provisions.

5. MAT Treatment for Companies under Old vs New Tax Regime

MAT Treatment: Old Regime vs New Regime (As per Finance Bill, 2026)

6. MAT Credit for Foreign Companies

For foreign companies (where MAT applies):

• MAT credit can be carried forward and utilised to the extent normal tax exceeds MAT
• This aligns MAT principles for foreign companies with global tax equity norms

7. Specific Exclusions from MAT Applicability

The Finance Bill, 2026 proposes to exclude MAT applicability for certain non-residents, including:

• Non-residents engaged in cruise ship operations
• Non-residents providing services or technology for setting up an electronics manufacturing facility in India, where the resident company opts for presumptive taxation

8. Strategic Impact of MAT Amendments- Core Insights

1. Recharacterization of MAT from Timing Difference to Tax Cost– The decision to treat MAT as final tax and discontinue the generation of new MAT credit fundamentally alters its character; from a temporary timing difference to a definitive tax incidence. This shift compels businesses to reassess MAT not as a recoverable advance tax, but as a permanent charge impacting economic returns.
2. Elevation of Regime Selection to a Structural Tax Choice– The bifurcation of MAT treatment under the old and new regimes transforms regime selection into a structural decision with long-term consequences. Companies must now evaluate regime choice through the lens of sustainability, capital efficiency, and predictability rather than short-term tax optimization.
3. Institutionalization of Certainty and Decline in Legacy Complexity– By curtailing MAT credit accumulation and prescribing clear utilization limits, the amendments institutionalize certainty while progressively dismantling legacy tax complexity. This is likely to reduce protracted disputes, simplify deferred tax positions, and enhance the credibility of financial reporting for stakeholders.

Print