Minimum Alternate Tax (MAT) is a tax provision in India designed to ensure that companies with substantial income do not avoid paying taxes by claiming various exemptions, deductions, or incentives under the Income Tax Act. Even if a company shows low or zero taxable income after using these benefits, MAT ensures it still contributes a minimum amount in taxes to the government.
MAT is calculated at a prescribed percentage (currently 15%) of a company’s book profit—which is the profit shown in the company’s profit and loss account prepared as per the Companies Act. If the income tax calculated under normal provisions is less than the MAT amount, the company must pay tax based on MAT.
This rule primarily applies to companies, including foreign companies with income sourced from India. However, certain types of income and companies (such as those in International Financial Services Centres under specified conditions) may be exempt.
From a compliance point of view, MAT requires businesses to assess both their normal tax liability and MAT liability every financial year and pay whichever is higher. While it may increase a company’s tax burden in the short term, the excess MAT paid can be carried forward and set off against future tax liabilities for up to 15 assessment years through a MAT credit mechanism.
For small and growing businesses, understanding MAT is essential when planning finances and filing corporate returns. It becomes particularly relevant during business registration, tax audits, or when claiming incentives that might otherwise reduce tax liability to zero.
To explore tax compliance support and corporate tax filing solutions, visit FinTax24’s Income Tax Services.