Comprehensive Guide to Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT)

The Income Tax Act 1961 contains two important anti-avoidance mechanisms to ensure that assessees with substantial income do not escape tax through heavy incentives, deductions and exemptions:

  • Minimum Alternate Tax (MAT) under Section 115JB, applicable to companies; and
  • Alternate Minimum Tax (AMT) under Sections 115JC to 115JF, applicable to specified non‑corporate assessees.

This article explains the updated framework of both MAT and AMT as amended up to the Finance Act 2026, including:

  • Chargeability and rates
  • Computation of book profit / adjusted total income
  • Cases where MAT/AMT do not apply
  • MAT/AMT credit and carry‑forward rules
  • Special provisions for Ind AS companies and APA/secondary adjustments

1. Concept and Purpose of MAT and AMT

1.1 Origin and intent of MAT

Historically, many companies disclosed high book profits in their financial statements and even distributed significant dividends, but paid little or no income tax by utilising multiple incentives under the Income Tax Act (e.g., accelerated depreciation, sectoral deductions, tax holidays etc.). These companies were often referred to as "zero tax companies".

To curb this scenario, the legislature introduced a floor-level tax on book profits called Minimum Alternate Tax (MAT).

  • MAT was first brought in through the Finance Act 1987 (effective from Assessment Year 1988‑89).
  • It was later withdrawn by the Finance Act 1990, and reintroduced via the Finance (No. 2) Act 1996 with effect from 1‑4‑1997.
  • Presently, MAT is governed by Section 115JB.

The core objective is to ensure that companies with substantial book profits contribute at least a minimum amount of tax, irrespective of what their taxable income works out to under the normal provisions of the Income Tax Act 1961.

1.2 Extension of the concept to non‑corporates – AMT

Over time, the same philosophy was extended to non‑corporate assessees (such as partnership firms, LLPs, individuals, HUFs, AOPs, BOIs, etc.) through the concept of Alternate Minimum Tax (AMT).

Thus:

  • MAT applies only to companies;
  • AMT applies to specified non‑corporate assessees who claim certain profit‑linked or incentive‑type deductions.

AMT provisions are contained in Sections 115JC to 115JF.

2. Basic Framework of MAT under Section 115JB

2.1 How MAT operates

For any company to which Section 115JB applies, income tax payable for a previous year is computed as the higher of:

  1. Normal tax liability

    • Tax on total income calculated as per the regular provisions of the Income Tax Act, 1961, at the applicable corporate tax rate (plus surcharge and cess).

  2. MAT on book profit

    • 15% of book profit (plus surcharge and cess), computed in the manner laid down in Section 115JB.

The higher of the two becomes the final tax liability for that year.

Note
For a company which is a unit located in an International Financial Services Centre (IFSC) and earning its income exclusively in convertible foreign exchange, MAT is levied at 9% of book profit (plus surcharge and cess), instead of 15%.

2.2 Illustrative computation of MAT

Example 1 – MAT higher than normal tax

  • Company: Essem Minerals Pvt. Ltd.
  • Taxable income under normal provisions: Rs. 9,25,000
  • Book profit as per Section 115JB: Rs. 20,25,000
  • Assume domestic company taxable at 30% (ignoring turnover‑based concessional rate) and ignore surcharge & cess.

  1. Normal tax liability

    • 30% of Rs. 9,25,000 = Rs. 2,77,500

  2. MAT liability

    • 15% of Rs. 20,25,000 = Rs. 3,03,750

Since MAT (Rs. 3,03,750) exceeds normal tax (Rs. 2,77,500), Essem Minerals Pvt. Ltd. must pay Rs. 3,03,750 (plus cess, if considered).

Example 2 – Normal tax higher than MAT

  • Company: SM Energy Pvt. Ltd.
  • Taxable income under normal provisions: Rs. 29,75,000
  • Book profit as per Section 115JB: Rs. 20,25,000
  • Rate assumed: 30% (ignoring concessional rate; cess and surcharge ignored).

  1. Normal tax liability

    • 30% of Rs. 29,75,000 = Rs. 8,92,500

  2. MAT liability

    • 15% of Rs. 20,25,000 = Rs. 3,03,750

Here, normal tax (Rs. 8,92,500) is higher than MAT (Rs. 3,03,750), so the final tax payable is Rs. 8,92,500 (plus cess).

Note
A domestic company may be eligible for a 25% rate if its turnover or gross receipts do not exceed Rs. 400 crores in the relevant previous year; the illustrations above assume the company exceeds this limit.

2.3 Companies to which MAT does not apply

As per Section 115JB, MAT is generally applicable to every company. However, there are specific exclusions:

  1. Domestic companies opting for concessional corporate tax regimes

    • Companies that have opted for Section 115BAA or Section 115BAB are outside the MAT regime.

  2. Life insurance business

    • Income of a company from life insurance business referred to in Section 115B is excluded from MAT (Section 115JB(5A)).

  3. Tonnage tax companies

    • Companies whose shipping income is assessed under the tonnage tax scheme in Sections 115V to 115VZC are not subject to MAT on that income.

  4. Specified foreign companies – Explanation 4 to Section 115JB
    With retrospective effect from 1‑4‑2001, MAT is deemed never to have applied to a foreign company if:

    • It is a resident of a country or specified territory with which India has a DTAA or agreement under Section 90 or Section 90A, and it does not have a permanent establishment in India as per that agreement; or
    • It is resident of a country without such an agreement and is not required to seek registration under any Indian company law.

  5. Additional foreign company carve-out – Explanation 4A to Section 115JB
    MAT does not apply to a foreign company whose total income consists only of profits and gains from business referred to in any of the following sections, where such income is taxed at the rates specified therein:

    • Section 44B
    • Section 44BB
    • Section 44BBA
    • Section 44BBB

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