Minimum tax

Minimum tax is a tax system provision under which corporations or certain taxpayers are required to pay a fixed minimum amount of tax each year, regardless of whether they have earned a profit or not. It ensures that companies contribute to public revenue even if they report low or zero taxable income due to deductions, exemptions, or losses.

Key Features: Applies irrespective of profits: Companies must pay the tax even in loss-making years. Targets large or profitable companies: Ensures that entities benefiting from tax incentives still contribute to revenue. Can be calculated as a flat amount or as a percentage of book profits, depending on local tax laws. Encourages compliance and discourages aggressive tax avoidance.

Example (India – MAT): A company reports book profits of ₹10 crore, but due to exemptions and deductions, taxable income is reduced to zero. Under Minimum Alternate Tax (MAT), the company must still pay a minimum of 15% of book profits as tax.