Minimum Alternative Tax (MAT)

Minimum Alternative Tax (MAT) is a provision in income tax law that ensures companies and certain taxpayers pay a minimum amount of tax, even if their profits are reduced or fully exempt under various deductions, exemptions, or incentives. MAT prevents companies from entirely avoiding tax liability through tax planning.

Key Features: MAT applies primarily to companies, including domestic and foreign firms operating in India. It is calculated as a percentage of “book profits”, i.e., profits shown in the company’s financial statements under accounting standards. If the MAT payable exceeds the normal tax liability, the company pays MAT instead. Companies can carry forward MAT credit for 15 years to offset future tax liabilities under normal provisions.

Example: If a company reports significant book profits but minimal taxable income, it must still pay MAT at 15% of its book profit.