MAT Under Section 115JB: Corporate Tax Guide (AY 2026-27)

Every year, a significant number of Indian companies report healthy book profits in their annual financial statements filed with the Registrar of Companies, yet show zero or near-zero taxable income when they file ITR-6. This happens because the Income Tax Act allows various deductions, exemptions, and incentives that reduce taxable income well below the accounting profit. The government's response to this gap between book profits and taxable income is Section 115JB: the Minimum Alternate Tax.

MAT is not a separate tax regime. It is a floor. If a company's normal tax liability falls below 14% of its book profit, the company pays MAT instead. The concept is straightforward, but the computation of book profit, the interaction with concessional tax regimes, and the mechanics of MAT credit carry-forward are where most companies (and their advisors) run into trouble.

This guide covers the complete MAT framework as it applies for Assessment Year 2026-27.

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What Is Minimum Alternate Tax (MAT)?

MAT was introduced in 1987, withdrawn, and reintroduced permanently in 1996 through Section 115JB. The underlying policy rationale is simple: if a company declares dividends to shareholders and reports profits in its audited financial statements, it should not be able to claim zero tax liability by exploiting the full spectrum of deductions and exemptions available under the Income Tax Act.

Section 115JB creates a parallel computation track. Instead of computing tax only on "total income" arrived at after all deductions, the company must also compute tax on "book profit" as defined in the section. The final tax liability is the higher of the two. For readers tracking the transition to the new law, our note on Section 115JB mapping under the Income Tax Act 2025 explains how the provision has been renumbered while the substance stays intact.

The two-track test every company must apply:

The company pays whichever is higher. If Track B (MAT) produces the higher figure, the company is said to be "MAT-liable" for that year.

Who Is Subject to MAT?

MAT under Section 115JB applies exclusively to companies. The scope is broad:

MAT applies to:

• Private limited companies
• Public limited companies
• One Person Companies (OPCs)
• Foreign companies operating through branches or project offices in India (subject to treaty provisions)
• Section 8 (not-for-profit) companies
• Government companies
• Companies under liquidation (until deregistered)
• Dormant companies with book profits
• Loss-making companies (MAT is computed on book profit, not taxable income; a company can have an accounting loss in the P&L but still have a positive book profit after the Section 115JB adjustments)

MAT does NOT apply to:

• Individuals and Hindu Undivided Families (HUFs)
• Partnership firms and Limited Liability Partnerships (LLPs)
• Trusts, associations of persons (AOPs), and bodies of individuals (BOIs)
• Co-operative societies
• Companies that have exercised the option under Section 115BAA or Section 115BAB (discussed in detail below)

Non-corporate assessees who claim certain profit-linked deductions or investment-linked deductions face a separate minimum tax called Alternate Minimum Tax (AMT) under Section 115JC, which we cover later in this guide.

MAT Rate for AY 2026-27: The Budget 2026 Reduction

The Union Budget 2026 reduced the MAT rate from 15% to 14% of book profits. This is the effective base rate before surcharge and cess.

Effective MAT rates for AY 2026-27 (FY 2025-26):

For foreign companies, surcharge rates differ (2% for book profit between Rs 1 crore and Rs 10 crore; 5% for book profit above Rs 10 crore), so the effective MAT rates are marginally different.

The rate reduction from 15% to 14% brings down the maximum effective MAT rate from approximately 17.47% to 16.31% for domestic companies with book profits above Rs 10 crore. While the reduction may appear modest, for large companies with book profits running into hundreds of crores, the annual saving is meaningful.

How to Calculate Book Profit Under Section 115JB

Book profit is not the same as net profit shown in the P&L account. Section 115JB starts with the net profit per the profit and loss account prepared in accordance with the Companies Act 2013 (applying applicable Accounting Standards or Ind AS), and then requires specific additions and deductions.

Step 1: Start With Net Profit as Per P&L

The starting point is the net profit as shown in the profit and loss account prepared under Schedule III of the Companies Act 2013. This figure must be from accounts that have been laid before the company in its annual general meeting (or, for companies not required to hold an AGM, accounts prepared in compliance with Section 129 of the Companies Act).

If the P&L has been prepared using Ind AS (Indian Accounting Standards), the net profit figure reflects fair value adjustments, OCI reclassifications, and other Ind AS-specific entries that are not present in accounts prepared under old Accounting Standards. The Section 115JB computation must use whichever framework the company is required to follow.

Step 2: Add Back the Following Items

If the net profit has been reduced by any of the following, these amounts must be added back:

Step 3: Deduct the Following Items

After adding back the above, deduct:

Step 4: The Result Is Book Profit

Book Profit = Net Profit as per P&L + Additions (Step 2) - Deductions (Step 3)

This is the figure on which MAT at 14% (plus surcharge and cess) is computed.

Critical point: If book profit is negative (a book loss after all adjustments), MAT is nil for that year. However, the book loss can be carried forward to be set off against future book profits for the purpose of Step 3 deductions.

Worked Example: When Does MAT Kick In?

Example 1: MAT Applies

ABC Private Limited (domestic company, turnover Rs 50 crore) for FY 2025-26:

MAT computation:

• MAT at 14%: Rs 10,40,00,000 x 14% = Rs 1,45,60,000
• Surcharge at 7% (book profit between Rs 1 crore and Rs 10 crore... wait, book profit is Rs 10.4 crore, so surcharge at 12%): Rs 1,45,60,000 x 12% = Rs 17,47,200
• Tax + surcharge: Rs 1,63,07,200
• Cess at 4%: Rs 6,52,288
• Total MAT liability: Rs 1,69,59,488

Normal tax computation:

Suppose total income under normal provisions (after all deductions) is Rs 3,00,00,000.

• Tax at 25%: Rs 75,00,000
• Surcharge at 7%: Rs 5,25,000
• Tax + surcharge: Rs 80,25,000
• Cess at 4%: Rs 3,21,000
• Normal tax liability: Rs 83,46,000

Comparison: MAT (Rs 1,69,59,488) > Normal tax (Rs 83,46,000). The company pays MAT.

MAT credit generated: Rs 1,69,59,488 - Rs 83,46,000 = Rs 86,13,488 (available for carry-forward).

Example 2: Normal Provisions Apply

XYZ Industries Ltd (domestic company, turnover Rs 200 crore) for FY 2025-26:

MAT: Rs 25,00,00,000 x 14% = Rs 3,50,00,000 + surcharge (12%) + cess (4%) = approximately Rs 4,07,68,000.

Normal tax: Rs 30,00,00,000 x 25% = Rs 7,50,00,000 + surcharge (10%) + cess (4%) = approximately Rs 8,58,00,000.

Normal tax (Rs 8,58,00,000) > MAT (Rs 4,07,68,000). The company pays normal tax. No MAT credit is generated this year. In fact, if the company has MAT credit brought forward from earlier years, this is the year to set it off (the excess of normal tax over MAT, i.e., Rs 4,50,32,000, is the maximum credit that can be utilised this year).

MAT Credit: Section 115JAA

When a company pays MAT instead of normal tax, the difference between MAT paid and the normal tax that would have been payable is not lost. It becomes MAT credit under Section 115JAA, which can be carried forward and used in future years.

How MAT Credit Works

1. Generation: In any year where MAT > normal tax, MAT credit = MAT paid - Normal tax payable (both computed with surcharge and cess).

2. Carry-forward period: The credit can be carried forward for 15 assessment years from the year in which it was generated. Any unused credit after 15 years lapses.

3. Set-off: In any subsequent year where normal tax > MAT, the company can set off MAT credit to the extent of the difference (normal tax - MAT for that year). The set-off cannot reduce total tax below the MAT liability for the year.

4. No interest: MAT credit does not earn any interest. It is a straight credit against future tax, not a refund.

MAT Credit Tracking Example

In AY 2027-28, normal tax exceeds MAT by Rs 20,00,000. The company uses Rs 20,00,000 of its Rs 29,00,000 credit balance. In AY 2028-29, the excess is Rs 17,00,000 but only Rs 9,00,000 credit remains, so only Rs 9,00,000 is used.

After set-off, the actual tax deposited with the government is:

• AY 2027-28: Rs 50,00,000 - Rs 20,00,000 = Rs 30,00,000 (but not less than MAT of Rs 30,00,000; so tax deposited = Rs 30,00,000). This works because the credit exactly brings it down to MAT level.
• AY 2028-29: Rs 45,00,000 - Rs 9,00,000 = Rs 36,00,000 (which exceeds MAT of Rs 28,00,000; so tax deposited = Rs 36,00,000).

Key Compliance Point

MAT credit is claimed in Schedule MAT of ITR-6. Our companion guide to ITR-6 filing for companies walks through the full return, including where the MAT schedules sit. Companies must maintain a year-by-year register of MAT credit generated, used, and lapsed. The credit from AY 2011-12 (the earliest year that could have generated credit still within the 15-year window) should be reviewed each year for potential lapse.

Companies Exempt from MAT: Sections 115BAA and 115BAB

The most significant MAT exemption in recent years came through the Taxation Laws (Amendment) Act, 2019, which introduced two concessional corporate tax regimes.

Section 115BAA: 22% Concessional Rate

Companies that opt for the 22% concessional rate under Section 115BAA are completely exempt from MAT. This is not a matter of computation; Schedule MAT simply does not apply.

The trade-off: companies opting for 115BAA must forgo all profit-linked deductions, investment-linked deductions, and most exemptions (including Section 10AA for SEZ units, Chapter VI-A deductions other than 80JJAA, and depreciation under Section 32(1)(iia)). Since these deductions are what typically push normal tax below MAT in the first place, the removal of MAT is consistent with the intent.

Effective rate under 115BAA: 22% + 10% surcharge + 4% cess = 25.168% (flat, irrespective of turnover).

Section 115BAB: 15% for New Manufacturing Companies

New domestic manufacturing companies incorporated on or after 1 October 2019 that commence production before 31 March 2024 can opt for a 15% rate under Section 115BAB. These companies are also exempt from MAT.

Effective rate under 115BAB: 15% + 10% surcharge + 4% cess = 17.16% (flat).

Which Regime to Choose?

The MAT exemption is a significant factor in the regime decision. Consider:

Once exercised, the option under Section 115BAA or 115BAB is irrevocable. A company that opts in cannot revert to the normal regime in a subsequent year.

Alternate Minimum Tax (AMT) Under Section 115JC

MAT is exclusively for companies. For non-corporate taxpayers who claim certain profit-linked or investment-linked deductions, the equivalent provision is the Alternate Minimum Tax under Section 115JC.

Who Is Subject to AMT?

AMT applies to:

• Individuals, HUFs, AOPs, and BOIs claiming deductions under Sections 80H to 80RRB (other than 80P) or Section 10AA
• Partnership firms claiming the above deductions
• Limited Liability Partnerships (LLPs) claiming the above deductions
• Co-operative societies (in certain cases)

If a non-corporate taxpayer's regular income tax is less than the AMT, the taxpayer pays AMT instead.

AMT Rate

18.5% of adjusted total income + applicable surcharge and 4% cess.

Note that adjusted total income for AMT purposes is different from book profit for MAT purposes. Adjusted total income = Total income + deductions claimed under the relevant sections (added back).

AMT Credit

Similar to MAT credit, AMT credit can be carried forward for 15 assessment years under Section 115JD. The mechanics are identical: the excess of AMT over regular tax becomes a credit, which can be set off in future years when regular tax exceeds AMT.

MAT vs AMT: Quick Comparison

ITR-6 Schedule MAT: Reporting Requirements

Every company filing ITR-6 must fill Schedule MAT, regardless of whether MAT actually applies. The schedule has three main parts:

Part A: Book Profit Computation

This mirrors the Section 115JB calculation:

1. Net profit as per P&L
2. Each addition item (listed line by line)
3. Each deduction item (listed line by line)
4. Computed book profit
5. MAT at 14% of book profit
6. Surcharge and cess
7. Total MAT liability

Part B: MAT Credit

1. MAT credit brought forward from each earlier assessment year (year-wise breakup)
2. MAT credit generated in the current year (if any)
3. MAT credit set off in the current year
4. MAT credit carried forward (balance after set-off and after lapsing any credit older than 15 years)

Part C: Tax Payable

1. Normal tax liability
2. MAT liability
3. Higher of the two = gross tax payable
4. Less: MAT credit set off
5. Net tax payable
6. Less: advance tax, TDS, TCS
7. Tax payable or refund due

Common filing errors in Schedule MAT:

• Entering book depreciation instead of the lower of book depreciation and IT Act depreciation in the deduction column
• Failing to add back deferred tax provisions (both debit and credit adjustments need careful treatment)
• Carrying forward MAT credit from years where the company had already opted for 115BAA (no credit can be generated or carried forward after opting in)
• Not accounting for the lapse of MAT credit older than 15 years
• Using total income instead of book profit as the MAT base

Practical Considerations for AY 2026-27

The 14% Rate Applies to FY 2025-26 Income

The rate reduction from 15% to 14% was announced in Budget 2026 and applies to AY 2026-27 (income earned in FY 2025-26). Companies computing advance tax for FY 2025-26 should use the 14% rate for their MAT computation in each installment.

Ind AS Companies: Watch the OCI Adjustments

Companies reporting under Ind AS must be especially careful with Other Comprehensive Income (OCI) items. Certain OCI items (such as remeasurement of defined benefit plans and fair value changes on equity instruments designated through OCI) affect the profit and loss account differently under Ind AS compared to old AS. The CBDT has issued clarifications on the treatment of these items for book profit computation, and these must be followed precisely. Getting these adjustments wrong is one of the more common reasons companies lean on professional corporate tax filing support rather than handling Schedule MAT in-house.

Transfer Pricing and MAT

For companies with international transactions, the book profit computation must also consider transfer pricing adjustments. If the Transfer Pricing Officer makes an adjustment that increases total income, it does not automatically increase book profit. Book profit is derived from the P&L as per books, and TP adjustments typically affect only the normal income computation. However, if the AO/TPO adjusts the P&L itself (for example, by recharacterising a transaction), the book profit may be impacted.

Companies in Tax Holidays

MAT was specifically designed to catch companies enjoying tax holidays under Sections 80-IA, 80-IB, 10A, 10AA, and similar provisions. While these deductions may reduce taxable income to zero, the book profit (which does not allow these deductions) remains positive. This is the classic MAT scenario: a profitable company paying zero tax under normal provisions but 14% under MAT.

With the phase-out of most profit-linked deductions (10A has expired; 80-IA sunset has passed for most categories), the number of companies falling into MAT purely due to tax holidays has reduced. However, SEZ units still claiming Section 10AA benefits remain prime MAT candidates.

Common Mistakes in MAT Computation

1. Confusing book profit with taxable income. Book profit starts from the P&L net profit. Taxable income starts from gross total income after Chapter IV heads. They are fundamentally different starting points.

2. Not preparing the P&L in accordance with the Companies Act. Section 115JB requires the P&L to comply with Schedule III of the Companies Act 2013. If the P&L is defective, the AO has the power to recompute book profit.

3. Incorrect depreciation treatment. The deduction is the lower of book depreciation and IT Act depreciation. Many companies mistakenly deduct IT Act depreciation (including additional depreciation), which is higher, and understate book profit.

4. Ignoring brought-forward book losses. Only book losses (as per books of account, not as per income tax) can be deducted, and only to the extent of the lower of brought-forward loss or unabsorbed depreciation as per books.

5. Forgetting to add back transfers to reserves. Any amount debited to P&L and transferred to any reserve (other than a reserve specified in the section) must be added back. This includes transfers to dividend equalisation reserves, contingency reserves, and general reserves.

6. Not reviewing MAT credit annually. MAT credit lapses after 15 years. Companies that have been MAT-liable for extended periods often have credit balances close to expiry. An annual review ensures timely utilisation. Firms that would rather outsource this year-on-year tracking can compare our corporate compliance plans and their transparent pricing.

Frequently Asked Questions

Can a loss-making company be liable for MAT?

Yes. A company may report a loss in its income tax computation (negative total income) but still have a positive book profit after the Section 115JB adjustments. In such a case, the company pays MAT on the positive book profit.

Does MAT apply to foreign companies?

Yes. Foreign companies operating in India through branches or project offices are subject to MAT on their book profits attributable to Indian operations. However, if a Double Taxation Avoidance Agreement (DTAA) provides more favourable treatment, the treaty provisions may override MAT. The Supreme Court in the CIT vs. Castleton Investment Ltd. line of cases has examined this, and companies should review their specific treaty position with their tax advisor.

What happens if a company switches from normal regime to 115BAA?

Once a company opts for 115BAA, MAT ceases to apply from that year. Any MAT credit accumulated under the normal regime is forfeited. The credit cannot be carried forward or utilised after the switch. This is one of the most important considerations when deciding to opt for the concessional regime.

Is MAT applicable to companies in IFSC (International Financial Services Centre)?

Companies in IFSC have been granted special concessions under Section 115BAA(1A), and the MAT rate for IFSC units was already reduced to 9% before Budget 2026. Companies should verify the latest notification for the applicable rate.

Can MAT credit be set off against tax on capital gains?

Yes. MAT credit can be set off against total tax liability (including tax on capital gains) in the year when normal tax exceeds MAT. There is no restriction that limits the credit to tax on business income alone.

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This guide is based on Section 115JB and Section 115JAA of the Income Tax Act 1961 (applicable for AY 2026-27), the Finance Act 2025 (Budget 2026) amendments reducing the MAT rate to 14%, CBDT circulars on book profit computation for Ind AS companies, and the ITR-6 form and instructions published by the Central Board of Direct Taxes for AY 2026-27. Companies should consult their Chartered Accountant for company-specific computations, particularly where Ind AS adjustments, transfer pricing, or treaty provisions are involved.

Frequently Asked Questions

Who is subject to MAT under Section 115JB?

MAT applies only to companies, both Indian and foreign, whose normal tax liability works out to less than the MAT rate applied to their book profit. Private and public companies, OPCs, Section 8 companies, and foreign companies with an Indian branch all fall within scope, including loss-making companies that still show a positive book profit after Section 115JB adjustments. It does not apply to individuals, HUFs, partnership firms, LLPs, or trusts, and it does not apply to companies that have opted for the concessional regime under Section 115BAA or 115BAB.

How long can MAT credit be carried forward?

MAT credit under Section 115JAA can be carried forward for 15 assessment years from the year in which it is generated. The credit is the excess of MAT paid over the normal tax that would have been payable, both computed with surcharge and cess. It can be set off in any later year where normal tax exceeds MAT, but the set-off cannot bring total tax below that year's MAT liability. Any credit left unused after 15 assessment years lapses, so companies should review their oldest credit balances annually to use them in time.

Are new manufacturing companies exempt from MAT?

Yes. New domestic manufacturing companies that opt for the concessional rate under Section 115BAB are fully exempt from MAT, and Schedule MAT does not apply to them. The same exemption applies to any company opting for the 22% regime under Section 115BAA. The trade-off is that these companies must forgo most profit-linked and investment-linked deductions, and once the option is exercised it is irrevocable.

What is the current MAT rate?

For AY 2026-27, the base MAT rate is 14% of book profit under Section 115JB, reduced from 15% in Budget 2026, plus applicable surcharge and 4% health and education cess. MAT is triggered when a company's normal tax works out to less than that rate applied to its book profit, in which case the company pays MAT instead of its normal tax. Companies that have opted into the Section 115BAA or 115BAB regimes are outside MAT altogether.