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Taxation · Income Tax Liability - Computation and Optimisation

Minimum Alternate Tax and Alternate Minimum Tax for CA Inter

Updated 4 October 2026 · Fact-checked

MAT makes a company pay tax on book profit, computed from its books, when tax under normal rules is lower than the MAT amount. AMT does the same for non-corporate assessees on adjusted total income. To solve, compute both taxes, pay the higher, and record the excess as credit where the rules allow it.

Understand Minimum Alternate Tax and Alternate Minimum Tax

Some profitable entities pay little or no tax because deductions and exemptions cut their taxable income. The law answers this with a floor tax. You compute tax two ways and pay the higher.

MAT applies to companies. It is dealt with in section 206 of the Income-tax Act, 2025. The base is book profit, which starts from the net profit in the statement of profit and loss (prepared as per Schedule III) and is then adjusted by prescribed additions and deductions. If normal tax on total income is less than MAT on book profit, the company pays MAT.

AMT applies to certain persons other than companies, such as firms, LLPs, individuals and HUFs, that claim deductions under specified profit-linked and similar incentive provisions. Not every incentive triggers AMT, so check the list of specified provisions and the AMT section number in ICAI's May 2027 material. The base is adjusted total income: total income plus the deductions claimed under those specified provisions.

The ₹20 lakh threshold applies to individuals, HUFs, AOPs, BOIs and artificial juridical persons. For them, AMT applies only if adjusted total income is above the threshold. The threshold does not shield firms and LLPs. They are covered whatever the amount. The examples here use ₹20 lakh, but use the threshold stated in the question or in ICAI's May 2027 material. Co-operative societies and others have specific rules, so check the exact scope in the material.

The excess of MAT or AMT over normal tax may give tax credit, which can be carried forward and set off in a later year only when normal tax is higher than MAT or AMT, and only to the extent of that excess. Whether credit arises, and the number of years it can be carried forward, are as per the applicable ICAI May 2027 material. Do not assume the period or the eligibility. Use what the question or the material states.

A company that opts for the concessional regime with lower rates is outside MAT. MAT rates, and whether future MAT paid earns credit, have been changed by recent Finance Acts. Use the rate and credit rule stated in the question or in ICAI's May 2027 material, as amended by the Finance Act, 2026. The examples here state their rates and show only the method. They assume credit is allowed.

Key rules to remember

MAT payable
If normal tax < MAT rate × Book profit, tax payable = MAT rate × Book profit (plus surcharge and cess)
MAT is under section 206 of the Income-tax Act, 2025. The rate is the one given in the question or the Finance Act, 2026 material. Companies under the concessional regime are not covered.
Book profit
Net profit as per statement of profit and loss + prescribed additions − prescribed deductions
Typical additions: income-tax provision, deferred tax, provisions for unascertained liabilities and diminution in asset value, expenses relating to exempt income. Typical deductions: exempt income, lower of brought forward loss or unabsorbed depreciation as per books.
Loss deduction in book profit
Deduct the LOWER of brought forward loss and unabsorbed depreciation, both as per books
If either is nil, the deduction is nil. Loss and depreciation here are from the books, not from the tax computation.
Adjusted total income (AMT)
Adjusted total income = Total income + deductions claimed under the specified incentive provisions (adjusted as prescribed)
Check the list of specified provisions in the material. Most questions add back one profit-linked deduction.
AMT payable
If normal tax < AMT rate × Adjusted total income, tax payable = AMT rate × Adjusted total income (plus surcharge and cess)
The examples use 18.5%. The ₹20 lakh threshold applies to individuals, HUFs, AOPs, BOIs and artificial juridical persons, not to firms and LLPs. Use the rate and threshold given in the question or in the ICAI May 2027 material.
Credit created
Credit = MAT (or AMT) paid − Normal tax, where credit is allowed
Eligibility and the carry forward period are as per the applicable ICAI May 2027 material. Do not assume them.
Credit set-off
Set-off = lower of (available credit, Normal tax − MAT or AMT of that year)
No set-off in a year when MAT or AMT is higher than normal tax. Subject to the credit rules in the applicable material.

How to solve Minimum Alternate Tax and Alternate Minimum Tax questions

Use this order for any MAT or AMT question. Keep the normal-tax computation and the minimum-tax computation separate.

  1. 1Identify the assessee. A company (not under the concessional regime) means MAT. A non-company claiming deductions under the specified provisions means AMT.
  2. 2Compute total income and normal tax on it as per regular rules. Use the rate for that assessee.
  3. 3For MAT, start with net profit as per the statement of profit and loss. Add the prescribed items. Deduct the prescribed items. Show each as a separate line.
  4. 4For AMT, start with total income and add back the specified deduction. If the assessee is an individual, HUF, AOP, BOI or artificial juridical person, check that adjusted total income exceeds the threshold given (₹20 lakh in the examples). If it does not, AMT does not apply. A firm or LLP has no threshold test.
  5. 5Compute MAT or AMT at the given rate on book profit or adjusted total income.
  6. 6Compare. If normal tax is higher, pay normal tax. If MAT or AMT is higher, pay that, and record credit equal to the excess if the rules allow credit.
  7. 7If earlier credit exists, set it off only when normal tax exceeds MAT or AMT, limited to that excess. Show the balance of credit carried forward and the year it expires, as per the carry forward period in the question or material.
  8. 8Add surcharge and cess only if the question asks for tax liability, and add them on the final tax payable.

Quickest way: Compare-and-credit shortcut

When to use it: Use for MCQs and for the last part of a written answer once you have both figures.

  1. For MCQs, first ask: is the assessee a company or a non-company? That alone removes options with the wrong base or rate.
  2. Compute the minimum tax figure first. It is often a single multiplication. Then compare with the normal tax given.
  3. If MAT or AMT is higher, the credit equals the difference, where credit is allowed. If normal tax is higher, credit is only usable up to that difference.
  4. In written answers, use three labelled blocks: Book profit (or adjusted total income), Normal tax, Comparison and credit. Each block earns step marks even if one figure goes wrong.
  5. For an individual, HUF, AOP or BOI, check the AMT threshold before computing. A below-threshold case is a common trap with no AMT at all. Do not apply the threshold to a firm or LLP.

Common mistakes in Minimum Alternate Tax and Alternate Minimum Tax

  • Starting book profit from taxable income instead of net profit in the books.

    Students are used to starting from total income in every other topic.

    Fix: For MAT, the first line is always net profit per the statement of profit and loss. Write it first.

  • Deducting both brought forward loss and unabsorbed depreciation from book profit.

    Both look like deductions, so students deduct the sum.

    Fix: Deduct only the lower of the two, as per books. If one is nil, the deduction is nil.

  • Applying MAT to a company that has opted for the concessional regime.

    Students see 'company' and stop reading.

    Fix: Check whether the company is under the lower-rate regime. If so, MAT does not apply and no credit arises.

  • Applying AMT to every non-corporate assessee, or applying the ₹20 lakh threshold to a firm or LLP.

    The word 'non-corporate' is read as the whole test, and the threshold is remembered without the persons it covers.

    Fix: AMT needs deductions under the specified provisions. For individuals, HUFs, AOPs, BOIs and artificial juridical persons, adjusted total income must also be above the threshold. Firms and LLPs have no threshold. Test these before computing.

  • Setting off the whole credit in the next year, or assuming a fixed carry forward period.

    Students treat credit as a refund-like balance and remember one period for every case.

    Fix: Set off only up to normal tax minus MAT or AMT for that year. The rest stays carried forward within the period given in the question or the ICAI May 2027 material.

  • Adding back exempt income to book profit.

    Confusion with AMT, where deductions are added back.

    Fix: For MAT, exempt income in the books is deducted. For AMT, the specified deduction is added back. Remember the direction by the base.

Worked examples

Example 1

A company (not under the concessional regime) has net profit of ₹50,00,000 per its statement of profit and loss, after debiting income-tax provision ₹12,00,000 and deferred tax ₹2,00,000. The profit includes ₹3,00,000 of income that is exempt under the Act, such as a share of profit received from a firm. Brought forward loss as per books is ₹4,00,000 and unabsorbed depreciation as per books is ₹6,00,000. Normal tax on total income is ₹7,00,000. Assume MAT rate of 15% and ignore surcharge and cess. Assume credit is allowed. Find the tax payable and the credit.

Show the solution
  1. Net profit per books = ₹50,00,000.
  2. Add income-tax provision ₹12,00,000 and deferred tax ₹2,00,000 = ₹14,00,000. Subtotal = ₹64,00,000.
  3. Deduct exempt income included in the profit, ₹3,00,000. Subtotal = ₹61,00,000.
  4. Deduct the lower of brought forward loss as per books (₹4,00,000) and unabsorbed depreciation as per books (₹6,00,000) = ₹4,00,000. Book profit = ₹57,00,000.
  5. MAT = 15% × ₹57,00,000 = ₹8,55,000.
  6. Normal tax = ₹7,00,000, which is less than MAT, so MAT applies.
  7. Credit = ₹8,55,000 − ₹7,00,000 = ₹1,55,000.

Answer: Book profit is ₹57,00,000. Tax payable is ₹8,55,000 (MAT). Credit of ₹1,55,000 is created, to be carried forward subject to the credit rules in the applicable material.

Example 2

A firm has total income of ₹18,00,000 after claiming a deduction of ₹12,00,000 under a specified profit-linked provision. Normal tax at 30% on total income is ₹5,40,000. Assume AMT rate of 18.5%, as given in the question, and ignore surcharge and cess. Assume credit is allowed. Compute the tax payable and the AMT credit.

Show the solution
  1. Adjusted total income = ₹18,00,000 + ₹12,00,000 = ₹30,00,000.
  2. The assessee is a firm, so the ₹20 lakh threshold does not apply. AMT can apply whatever the amount.
  3. AMT = 18.5% × ₹30,00,000 = ₹5,55,000.
  4. Normal tax ₹5,40,000 is lower than AMT ₹5,55,000, so the firm pays AMT.
  5. Credit = ₹5,55,000 − ₹5,40,000 = ₹15,000.
  6. In a later year, the credit can be set off only if normal tax exceeds AMT, and only up to that excess.

Answer: Adjusted total income is ₹30,00,000. Tax payable is ₹5,55,000 (AMT). AMT credit of ₹15,000 is carried forward, subject to the credit rules and carry forward period in the applicable material.

Exam tips

  • Write the assessee type and the base in your first line. This sets the whole answer.
  • Show book profit as a list of additions and deductions. Examiners award marks per item.
  • For an individual, HUF, AOP or BOI, always test the AMT threshold. A question may place adjusted total income just below it. Remember that firms and LLPs have no threshold.
  • State the rate you use. If the question gives a rate, use that. Otherwise follow the Finance Act, 2026 material.
  • End with the credit and its carry forward period as per the question or material. That last line is often a separate mark.

Practice questions from Income Tax Liability - Computation and Optimisation

Minimum Alternate Tax and Alternate Minimum Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Minimum Alternate Tax and Alternate Minimum Tax: frequently asked questions

What is the difference between MAT and AMT?

MAT applies to companies and is computed on book profit taken from the books. AMT applies to certain non-corporate assessees who claim deductions under specified provisions and is computed on adjusted total income. Both work as a minimum tax. Credit for the excess paid depends on the credit rules in the applicable material.

How do I compute adjusted total income for AMT?

Take total income as computed under normal rules. Add back the deductions claimed under the specified incentive provisions, adjusted as prescribed. For an individual, HUF, AOP, BOI or artificial juridical person, check that the result exceeds the threshold (₹20 lakh in the examples here) before applying the AMT rate. A firm or LLP has no such threshold.

How long can MAT or AMT credit be carried forward?

The carry forward period and whether credit arises are as per the applicable ICAI May 2027 material, so use the period given in the question or the material. Credit is set off only in a year when normal tax exceeds MAT or AMT, and only up to that excess. Check the Finance Act, 2026 material for any change in the credit rule for later MAT paid.

Does MAT apply to every company?

No. A company that has opted for the concessional lower-rate regime is outside MAT. Read the question for the regime before computing book profit.