Minimum Alternate Tax and Book Profit Computation for Companies

Understand Minimum Alternate Tax and Book Profit

Key rules to remember

MAT trigger

If regular tax < MAT, then tax payable = MAT

Regular tax is on total income computed under the Act. Compare the tax amounts, not the incomes.

MAT rate for companies

MAT = 14% × book profit

Rate is 9% for an IFSC unit deriving income solely in convertible foreign exchange. Surcharge and cess are extra where applicable.

Book profit

Book profit = Net profit per statement of profit and loss + additions − deductions

Additions include income-tax and provision for it, reserves carried, unascertained provisions, dividends, depreciation, deferred tax debited, provision for diminution in asset value. Deductions include withdrawals from reserves already added, section 11 income, depreciation (excluding revaluation depreciation), deferred tax credited, and lower of brought-forward loss or unabsorbed depreciation as per books.

Brought-forward loss deduction

Deduction = lower of (loss b/f excluding depreciation, unabsorbed depreciation), as per books

If either figure is nil, the deduction is nil. Both figures are as per books of account, not as per tax computation.

Domestic company credit set-off (section 206(3))

Set-off ≤ 25% × tax payable on total income

Only for a domestic company that has exercised the option under section 200(5) or 201(2), and only for credit brought forward as on 31 March 2026.

Foreign company credit set-off (section 206(4))

Set-off ≤ regular tax − MAT

Only brought-forward credit as on 31 March 2026. Allowed only when regular tax exceeds MAT.

Alternate minimum tax (non-company)

AMT = 18.5% × adjusted total income

Rate is 9% for an IFSC unit and 15% for a co-operative society. Excluded for an individual, HUF, AOP or BOI whose adjusted total income does not exceed ₹20 lakh. Credit equals AMT minus regular tax, carried forward up to the fifteenth succeeding tax year.

How to solve Minimum Alternate Tax and Book Profit questions

1. 1Check whether section 206(1) applies. Note exclusions: a company that has opted for a concessional regime under section 200(5) or 201(2), and certain foreign companies listed in the section, are outside MAT.
2. 2Compute the total income by the normal rules and the regular tax on it at the applicable rate.
3. 3Take the net profit from the statement of profit and loss prepared as per Schedule III or the governing enactment.
4. 4Add the debited items listed in the section: income-tax and provision, reserves, unascertained provisions, dividends, depreciation, deferred tax, provision for diminution in asset value and others.
5. 5Deduct the credited items listed: reserve withdrawals already added, exempt section 11 income, depreciation (excluding revaluation depreciation), revaluation reserve withdrawal up to that depreciation, deferred tax credited, and the lower of brought-forward loss and unabsorbed depreciation as per books.
6. 6Apply the special adjustments if the facts give them, such as Ind AS items, foreign company income taxed at a lower rate, or patent royalty.
7. 7Compute MAT at 14% of book profit. Compare it with regular tax. The higher is payable.
8. 8State the tax payable and the tax credit position. If a company has brought-forward credit as on 31 March 2026, apply the set-off limits of section 206(3) or (4). Add surcharge and cess only if the question asks for them.

Quickest way: Two-column book profit table

Common mistakes in Minimum Alternate Tax and Book Profit

• Using the old 15% MAT rate.

  Older books and notes show 15%.

  Fix: Use 14% for a company under section 206(1)(b)(ii) for the tax year 2026-27. Use 9% only for an IFSC unit earning solely in convertible foreign exchange.

• Deducting the brought-forward loss or unabsorbed depreciation as per the tax computation.

  Students carry over the figures from the total income working.

  Fix: Use the figures as per books of account and deduct the lower of the two. If either is nil, the deduction is nil.

• Adding depreciation including depreciation on revalued assets and then deducting it again in full.

  The addition and the deduction look like a wash.

  Fix: Add all depreciation debited. Deduct depreciation debited excluding that on revaluation, and deduct revaluation reserve withdrawn only up to the revaluation depreciation.

• Adding an item that was not debited, or deducting one that was not credited.

  Students add items by name and ignore the condition in the section.

  Fix: Check that each item was actually debited or credited in the statement of profit and loss before adjusting.

• Assuming fresh MAT credit arises every time MAT is paid.

  Older rules allowed credit for the excess of MAT over regular tax.

  Fix: Those credit clauses have been omitted from 1 April 2026. Only credit brought forward as on 31 March 2026 can be used, within the limits of section 206(3) or (4).

• Comparing book profit with total income instead of MAT with regular tax.

  The trigger is described loosely as book profit being higher.

  Fix: Compare the tax amounts: regular tax on total income against 14% of book profit.

Worked examples