Minimum Alternate Tax (MAT) ensures that profitable companies on book basis pay at least 15% of their book profit as tax, even if their taxable income under normal provisions is nil or low. The Income-tax Act 2025 retains MAT under Section 206 at the same rate but renumbers the book profit computation schedule and MAT credit provisions. For companies and their finance teams, understanding what changed (section numbers, schedule references) versus what stayed the same (rates, mechanics) is essential for Tax Year 2026-27 compliance.
Use the Income Tax CalculatorModel the tax impact alongside this guide.
MAT — Old Act (Section 115JB) vs New Act (Section 206)
Minimum Alternate Tax ensures that companies paying little or no tax under normal provisions still pay a minimum tax based on book profits. The new Act continues MAT under Section 206 at the same effective rate of 15% of book profit, with the standard surcharge and health and education cess (effective rate approximately 17.01% for companies with surcharge).
Parameter
Old Act (Section 115JB)
New Act (Section 206)
Section
115JB
206
Tax rate
15% of book profit
15% of book profit (unchanged)
MAT credit carry-forward: Section 208 (old: Section 115JAA) — 15 years (unchanged)
MAT applicability
All companies except specified categories
All companies (including LLPs with MAT provisions)
Exempt — companies opting for 115BAA/115BAB
Exempt if opted 115BAA or 115BAB
Exempt if opted lower rate regime under Section 209/223
Book profit computation
Schedule VII — additions/deductions
Schedule VIII — same logic, renumbered
Book Profit Computation — Key Additions and Deductions
Book profit under Section 206 is the net profit per the Company's profit and loss account, adjusted for several items. Key additions to net profit:
Income tax and deferred tax provision
Proposed/paid dividend (if debited to P&L)
Provision for unascertained liabilities (e.g., general provisions, provisions for doubtful debts not specific)
Amounts set aside to reserves (other than statutory reserves)
Expenditure relating to exempt income under Schedule II (new Act)
Key deductions from net profit (to reduce book profit):
Depreciation claimed in P&L (before adding back) minus depreciation computed ignoring revaluation
Brought-forward book losses (if lower than WDV of assets per books)
Income from life insurance business
Amount of long-term capital gains exempt under Section 83 of new Act (old Section 10(38))
ℹ️
MAT Credit — Critical Asset: When a company pays MAT (15%) in a year where normal tax is lower, it earns MAT credit under Section 208 equal to (MAT paid − normal tax liability). This credit can be carried forward for 15 years and adjusted in years when normal tax exceeds MAT. Companies with large depreciation or deductions often accumulate MAT credit — track it carefully on Schedule MAT of the ITR.
Case Study: Infrastructure Company with ₹45 Lakh MAT Credit
Construction Company, Hyderabad — Tax Years 2022-23 to 2026-27
Aashish Infrastructure Pvt. Ltd. had large book profits but low taxable profits for 4 consecutive years due to accelerated depreciation on equipment. In each year, MAT at 15% exceeded normal tax, accumulating ₹45 lakh in MAT credit.
MAT Credit Accumulated
₹45 lakh over 4 years
Tax Year 2026-27 Normal Tax
₹48 lakh (assets fully depreciated)
In Tax Year 2026-27, equipment was fully depreciated — normal tax of ₹48 lakh exceeded MAT of ₹12 lakh. The company claimed ₹36 lakh of MAT credit (bringing normal tax down by ₹36 lakh), paying only ₹12 lakh. MAT credit balance: ₹9 lakh, carried forward further. The Section 208 credit mechanism effectively deferred ₹36 lakh of tax for 4 years — a legitimate cash-flow benefit.
Companies Exempt from MAT — New Act Section 206
Companies opting for the concessional tax rate under Section 209 (old: 115BAA) — 22% rate without exemptions/deductions
New manufacturing companies under Section 223 (old: 115BAB) — 15% rate
Companies in SEZ units may have modified MAT provisions
Life insurance companies (separate tax regime)
MAT Compliance Checklist
Compute book profit per Schedule VIII of new Act — reconcile with net P&L
Compare MAT (15%) with normal tax — pay higher amount
If paying MAT: compute MAT credit for the year and carry forward
Track MAT credit balance in ITR Schedule MAT each year — 15-year utilisation window
If considering Section 209 (no-deduction regime): once opted, MAT exemption applies permanently
Ensure deferred tax accounting is accurate — impacts book profit computation
Under Section 206 of the Income-tax Act 2025, the MAT rate is 15% of book profit — same as under the old Section 115JB. With surcharge (applicable to companies with income above ₹1 crore) and health and education cess at 4%, the effective MAT rate for most domestic companies is approximately 17.01%. Companies that have opted for the concessional tax rate under Section 209 (old Section 115BAA) are exempt from MAT.
Under Section 208 of the Income-tax Act 2025 (old Section 115JAA), MAT credit (i.e., the excess of MAT paid over normal tax in a given year) can be carried forward for 15 assessment years/tax years. The credit is utilised in years when normal tax exceeds MAT — the excess of normal tax over MAT in that year is offset against the accumulated MAT credit.