Minimum Alternate Tax and Corporate Tax Rate Options

Understand Minimum Alternate Tax and Corporate Tax Rate Options

Key rules to remember

MAT liability

MAT = 14% × book profit

For companies other than an IFSC unit. The rate is 9% for an IFSC unit deriving income solely in convertible foreign exchange.

Tax payable by company

Tax payable = higher of (regular tax on total income, MAT)

If regular tax is lower, book profit is deemed to be total income under section 206(1)(a).

Book profit

Book profit = Profit per P&L + prescribed additions − prescribed deductions ± clause (d) adjustments

P&L is prepared as per Schedule III or the governing enactment. Accounting policies and depreciation method must be the same as those used for the accounts laid before the AGM.

Brought-forward loss deduction

Deduction = lower of (brought-forward loss excluding depreciation, unabsorbed depreciation), as per books

If either amount is nil, the deduction is nil. Special rules apply to companies under CIRP or Companies Act section 241 and 242 cases.

Old MAT credit set-off: domestic company

Maximum set-off in a year = 25% × tax payable on total income under the other provisions

Applies to a domestic company that has opted under section 200(5) or 201(2) for a tax year beginning on or after 1 April 2026. Credit as on 31 March 2026 under section 115JAA of the 1961 Act. Unused credit is carried forward.

Old MAT credit set-off: foreign company

Set-off = tax on total income − MAT, limited to available credit

Allowed only when regular tax exceeds MAT under section 206(1).

Credit carry-forward limit

Not beyond the 15th tax year after the tax year in which the credit first became allowable under section 115JAA of the 1961 Act

Applies to both domestic and foreign companies under section 206(3) and (4).

AMT for non-companies

AMT = 18.5% × adjusted total income

Rate is 9% for an IFSC unit and 15% for a co-operative society. Not applicable to an individual, HUF, AOP or BOI whose adjusted total income does not exceed ₹20,00,000. AMT credit carries forward up to the 15th tax year.

How to solve Minimum Alternate Tax and Corporate Tax Rate Options questions

1. 1Identify the assessee. Check if it is a company, whether it is domestic or foreign, and whether it is an IFSC unit. Check whether it has opted under section 200(5) or 201(2). If it has, MAT does not apply.
2. 2Take the profit per the statement of profit and loss. Note that it is the figure after all debits.
3. 3Add back the items debited: income-tax and its provision, reserves, provisions for unascertained liabilities, dividends, depreciation, deferred tax, and provision for diminution in asset value.
4. 4Deduct the items credited or allowed: reserve withdrawals (where book profit was earlier increased), depreciation excluding revaluation depreciation, deferred tax credited, and the lower of brought-forward loss and unabsorbed depreciation.
5. 5Apply the clause (d) adjustments if the facts mention them, such as foreign company income, patent royalty, Ind AS items or insolvency cases.
6. 6Compute MAT at 14% of book profit (9% for the IFSC unit). Compute regular tax on total income separately.
7. 7Compare. Pay the higher. State clearly that MAT paid in excess creates no fresh credit from 1 April 2026.
8. 8If the question gives old credit as on 31 March 2026, apply the set-off limit and show the carried-forward balance and the 15-year limit. For a regime-choice question, compare total tax under each option and conclude.

Quickest way: Four-line MAT check

Common mistakes in Minimum Alternate Tax and Corporate Tax Rate Options

• Using 15% as the MAT rate.

  Older notes and earlier question papers used 15%.

  Fix: Use 14% for the June 2027 session, unless the company is an IFSC unit (9%). The change took effect from 1 April 2026.

• Carrying forward the excess of MAT over regular tax as fresh MAT credit.

  Students remember the earlier credit rule.

  Fix: The credit clauses were omitted from 1 April 2026. Only credit existing as on 31 March 2026 under section 115JAA of the 1961 Act can be used.

• Deducting the full brought-forward loss from book profit.

  Students treat it like normal loss set-off.

  Fix: Deduct only the lower of brought-forward loss (excluding depreciation) and unabsorbed depreciation, as per books. If either is nil, deduct nothing.

• Adding back depreciation but forgetting to deduct depreciation excluding revaluation.

  Students remember the add-back list but miss the matching deduction.

  Fix: Section 206(1)(c)(xiii) allows a deduction for depreciation other than on revaluation. Revaluation depreciation stays added back, offset by the revaluation reserve withdrawal in clause (xiv).

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

  Students compute MAT for every company by habit.

  Fix: Section 206(1)(q) excludes a person who has exercised the option under section 200(5) or 201(2). Check the option first.

• Setting off the whole old credit in one year for a domestic company on the concessional regime.

  Students ignore the cap.

  Fix: The set-off is limited to 25% of the tax payable on total income in that year. Carry the rest forward within the 15-year limit.

Worked examples