Book Profit and Minimum Alternate Tax for Companies

Understand Book Profit and Minimum Alternate Tax

Key rules to remember

MAT test

If normal tax < MAT, tax payable = MAT; book profit is deemed total income

Section 206(1)(a). If normal tax is equal to or higher, you pay normal tax.

MAT amount

MAT = 14% × book profit (other companies); 9% × book profit (IFSC unit earning solely in convertible foreign exchange)

The 14% rate applies from 1 April 2026 (earlier 15%). Surcharge and cess are added as applicable.

Book profit

Book profit = P&L profit + listed additions − listed deductions ± special adjustments

Start from the P&L prepared under Schedule III or the governing Act, using the same policies as the accounts laid before the AGM.

Loss or depreciation deduction

Deduct the lesser of (brought forward loss excluding depreciation) and (unabsorbed depreciation), as per books

If either amount is nil, nothing is deducted under this item. Different rules apply to companies under CIRP or Tribunal-nominated directors.

Credit for domestic company that has exercised the option (section 200(5) or 201(2))

Set off in a year ≤ 25% × tax payable on total income under other provisions

Applies to credit under section 115JAA, 1961 as on 31 March 2026. Unused credit is carried forward, not beyond the fifteenth tax year after the year it first became allowable.

Credit for foreign company

Set off in a year ≤ (tax on total income − MAT) of that year

Set off only when normal tax exceeds MAT. The fifteen-year limit applies.

How to solve Book Profit and Minimum Alternate Tax questions

1. 1Check applicability. Is it a company? Has it exercised the option under section 200(5) or 201(2)? Is it a foreign company covered by the exclusions in clause (l)? Does clause (q) apply? If excluded, stop and say so.
2. 2Confirm the starting profit: the P&L as per Schedule III or the governing Act, with the same accounting policies as the accounts laid before the AGM.
3. 3List additions: income-tax and provision, reserves, unascertained provisions, dividends, deferred tax debit, depreciation, diminution provision, and similar items debited to the P&L.
4. 4List deductions: reserve withdrawals credited, depreciation excluding revaluation, deferred tax credited, and the lesser of brought forward loss and unabsorbed depreciation. Then apply special adjustments from clause (d).
5. 5Apply the rate to book profit: 14% generally, 9% for the IFSC unit. Add surcharge and cess only if the question asks.
6. 6Compute normal tax on total income and compare with MAT. State the higher amount as tax payable, with the reason.
7. 7Deal with credit. Say no fresh MAT credit arises from 1 April 2026. Apply the set-off rule to any credit under section 115JAA brought forward as on 31 March 2026.
8. 8Conclude in one line with the amount payable and any credit carried forward.

Quickest way: Table method for book profit

Common mistakes in Book Profit and Minimum Alternate Tax

• Adding depreciation and not deducting it, or the reverse

  Students remember only one of the two items.

  Fix: Depreciation is added back and the depreciation debited is deducted, excluding depreciation on revaluation. So with no revaluation the net effect is nil.

• Deducting both brought forward loss and unabsorbed depreciation

  Students apply the normal set-off logic.

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

• Using 15% as the MAT rate

  Older material and earlier law used 15%.

  Fix: Use 14% for companies other than the IFSC unit, with effect from 1 April 2026. Use 9% for the IFSC unit earning solely in convertible foreign exchange.

• Showing fresh MAT credit for the excess of MAT over normal tax

  Students carry over the earlier section 115JAA rule.

  Fix: Clauses (m) to (p), which gave credit, are omitted from 1 April 2026. Only credit allowed to be carried forward as on 31 March 2026 can be used.

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

  Students forget the exclusion.

  Fix: Clause (q) says the sub-section does not apply to a person who has exercised the option under section 200(5) or 201(2). Check this first.

• Taking a different profit figure from the AGM accounts

  Students rework the P&L with new policies.

  Fix: Use the same accounting policies, standards and depreciation method as in the accounts laid before the AGM.

Worked examples