MAT as it stands in 2026

Why is MAT required in the first place?

Many companies, show high “book profits” in their financial statements/Annual report (ie books prepared under company law). But use various exemptions, deductions and incentives available under Income tax Act, to reduce taxable income to near zero.
To ensure that these profitable companies also contribute to Government exchequer, MAT was introduced. MAT enforces mandatory contribution tied to book profits, even when taxable income is lowered by exemptions.

Applicability of MAT

MAT applies to those companies whose tax liability under normal income tax provisions is less than 14% of book profits. (as amended in 2026)

Every company calculates tax twice:
(1) Normal Tax: Taxable Income × 30% and
(2) MAT: Book Profit × 14%
Case 1: Normal Tax ≥ MAT → Company pays Normal Tax (since it is already higher) & there ends the matter.
Case 2: Normal Tax < MAT → Company pays MAT.
In case 2, Companies cannot just escape with very low tax, just by using exemptions. They must pay at least the MAT threshold.
Basically, Higher of the two, is payable as Final Tax liability.

Government itself makes two sets of rules - one for book profits under company law and another for tax profits under tax law,

Isn’t it unfair that they then compare both and force companies to pay MAT? Wouldn’t it have been simpler to just have one unified law for profits and tax instead of this double system?

To understand that, lets analyse Book profits vs. tax profits:

Book profits calculated under Companies Act are meant to show true financial performance to shareholders, regulators and creditors.

On the other hand, taxable profits are computed under Income tax act, to determine the company’s liability to the government. Many companies, especially those operating in incentivized sectors or capital intensive ones, showed large book profits but paid little or no tax, availing the heavy deductions and special exemptions available under Income tax Act.

The government grants incentives to encourage investment, but if too many profitable companies pay almost no tax, the exchequer loses significant revenue. MAT Bridges this gap by ensuring companies with high book profits but low taxable profits still pay a minimum tax.

MET applies to whom?

1. Domestic companies under old tax regime, MAT applies. (Tax is lower of 30% normal tax vs 14% MAT)
2. For companies opting for the concessional 22% regime - MAT does not apply
3. For Foreign companies operating in India (if they have a Permanent Establishment or a fixed place of business in India)-> MAT applies, unless specifically exempt.

Exclusion:
1. Units in International Financial Services Centres (IFSC) enjoy the concessional MAT rate of 9%
2. SEZ units → Exempt from MAT, to encourage investment and exports.
3. Foreign companies whose income solely consists of specific "presumptive" businesses like shipping or aircraft operations (Sections 44B, 44BB, etc)

MET is levied on what?

It is levied on book profits as per the Companies Act adjusted for certain inclusions/exclusions specified in the Income Tax Act. There are no amendments in 2026 wrt these adjustments. Following is the Calculation to arrive at Book profit before tax (for MAT purpose)

Before proceeding, remember MAT adjustments are not 'tax deductions', they are 'profit corrections'.

A. Net Profit as per the Companies Act 2013: ---------------------------------------------- XXXX

B. Add back to Book Profit the following, if already debited to P&L
(Coz, these items reduce book profit artificially, does not reflect real operating profit)

1. Income-tax paid / provisions → MAT is calculated on profit before tax. Also, Tax is an appropriation of profit, not an expense of business. So it’s added back..
2. Transfer to any Reserves (general reserve, etc.) → Transfer to reserves is just allocation of profit, not an actual expense. Adding this back ensures the tax is levied on the total profit earned, regardless of where it's parked. Hence added back.
3. Proposed dividend → Distribution of profit, not expense.
4. Provisions for Unascertained liabilities and losses (like doubtful debts, contingencies) → These are estimates, not actual losses/confirmed expenses yet. To avoid understatement of profit, they’re added back.
5. Provision for Losses of Subsidiary Companies → A parent company cannot reduce its own taxable book profit by simply "expecting" a loss in its subsidiary. Each company's MAT is calculated independently.
6. Depreciation (Full Amount): You add back the total depreciation debited to the P&Lamp; to "reset" the figure before applying the specific MAT-allowed depreciation deduction.
7. Provision for diminution in value of any asset → Notional, not actual loss.
8. Deferred tax → It’s an book adjustment for timing differences, not a real cash outflow or real commercial loss. Added back to reflect true profit.
9. Expenditure related to exempt income → If the income itself is excluded from MAT, then the expenses incurred to earn that "tax-free" income must also be disallowed and added back.
10. Expenditure related to share of profit in AOP/BOI/SPV → They are already taxed as seperate entities

C. Deduct from book profit the following, if originally credited (added) to P&L
(because these items artificially inflate book profit)

1. Income exempts under Sec. 10 (like agri income, certain dividends) → IT Law exempts it, so deducted.
2. Depreciation (as per Companies Act) → Forget Income Tax depreciation, MAT only cares about Book depreciation (companies act). Also remember to deduct only normal depreciation and exclude depreciation if any on revalued amount so that the companies can't artificially lower tax just by jacking up/inflating the assets.
3. Loss brought forward / unabsorbed depreciation (lower of the two) → IT law allows this to give relief for past losses.
4. Aggregate of Loss brought forward and unabsorbed depreciation(for IBC Insolvency Companies) → IT law allows this Special relief for IBC Companies.
5. Withdrawals from reserves → When a company withdraws from reserves, it essentially adds it back to P&L. Since that amt is already taxed in previous year when reserve was created, the credited amount should not be subject to tax agin. Hence deducted to avoid double taxation.
6. We add back the extra revaluation depreciation as it’s not a real expense. Consequently, any amount the company withdraws from the reserve to offset this depreciation and credits to the P&L is also deducted to prevent artificial profit inflation.
7. Profits of sick industrial companies (for specified period) → IT law allows this Special relief.
8. Income from SEZ units (Sec. 10AA) → Deducted as exempt.
9. Income that are taxable at special rate → Since, already covered under Special tax regime
10. Share of profit or Gains from AOP/BOI/SPV,credit to P&L to which the entity is member of. → Avoid double taxation
11. Deferred tax credit → not a real cash outflow or real commercial benefit. Added back to reflect true profit.

D: Result (A+B-C) Adjusted book profit (on which MAT is levied). ---------------------XXXX

What about MAT credit?

Pre-amendment : Previously, when a company's tax under MAT was higher than its normal tax, the "extra" amount paid became MAT Credit.

This credit could be carried forward for succeeding 15 Assessment Years and used in future year in which the company's normal tax liability exceeded its MAT liability. But the maximum set-off allowed in that case is restricted to the amount which is equivalent to difference between normal tax and MAT for that specific year.

Post-amendment : From 1 April 2026, the concept of MAT credit is removed. No fresh MAT credit can be generated. Any MAT credit accumulated up to 31 March 2026 remains valid subject to some restrictions, which is as follows:
(a) Domestic Companies: Can only use this old credit if they shift to the new tax regime. That too, there is a utilization Cap- meaning, the set-off is restricted to 25% of the tax liability for that year.
(b) Foreign companies: Can use old MAT credit only to the extent normal tax exceeds MAT. (There’s no fixed percentage cap like the 25% restriction for domestic firms)

List the Compliances, if any!

1. Every company paying MAT must obtain a report in Form 29B from a Chartered Accountant. Since MAT calculations involve complex add-backs and deductions from book profits, the government requires a CA to certify that these adjustments were done correctly as per Section 115JB.

2. As applicable for all companies, Companies subject to MAT must pay Advance Tax throughout the year. Failure to do so attracts interest under Section 234B and 234C

3. All MAT computations, including "Book Profit" adjustments, must be explicitly disclosed in the relevant schedules of ITR-6.