Minimum Alternate Tax is a tax under section 115JB that makes a profitable company pay at least 15% of its book profit, plus surcharge and cess, even when deductions cut its normal tax to little or nothing.
Below: who pays it, how book profit is worked out, a worked example, how MAT credit is carried forward for 15 years, and why companies under section 115BAA are exempt.
What Is Minimum Alternate Tax
Minimum Alternate Tax is a floor on what a company pays, charged on its book profit under section 115JB of the Income-tax Act, 1961. It stops a company that reports large profits to shareholders from paying little or no tax.
A company pays the higher of two amounts each year: the normal tax on its taxable income, or MAT on its book profit. This guide sits alongside the wider map in Types of Taxes in India.
| Test | Base | Rate |
|---|---|---|
| Normal tax | Taxable income under the Act | Rate that applies to the company |
| MAT | Book profit from the profit and loss account | 15%, plus surcharge and 4% cess |
The company pays the larger figure, and any excess over normal tax becomes MAT credit. The rules are on incometaxindia.gov.in.
Who Has to Pay MAT
MAT applies to companies, and only to companies. A domestic company is covered when its normal tax is lower than MAT, and a foreign company with a taxable presence in India can be covered too.
| Taxpayer | MAT applies? | Note |
|---|---|---|
| Domestic company on normal rates | Yes | If normal tax is below MAT |
| Company under section 115BAA or 115BAB | No | MAT is switched off for these regimes |
| Foreign company with a taxable presence | Can apply | Facts decide, check with an adviser |
| Partnership firm | No | Alternate minimum tax may apply instead |
| LLP | No | Alternate minimum tax may apply instead |
| Individual or HUF | No | Alternate minimum tax only in some cases |
A company with no taxable income but a book profit still pays MAT. That is the case the tax was built for.
MAT Rate With Surcharge and Cess
The MAT rate is 15% of book profit, plus surcharge and a 4% health and education cess. The rate was 18.5% until assessment year 2019-20 and fell to 15% from assessment year 2020-21.
| Book profit | Surcharge | Effective rate |
|---|---|---|
| Up to Rs 1 crore | Nil | 15.6% |
| Above Rs 1 crore, up to Rs 10 crore | 7% | About 16.69% |
| Above Rs 10 crore | 12% | About 17.47% |
For a book profit of Rs 5 crore, MAT is Rs 75,00,000, and with 7% surcharge and 4% cess it comes to Rs 83,46,000. Surcharge rates are set by the Finance Act, so confirm them for your year.
See your effective tax rate
Enter your income and tax to see the share that actually goes to tax.
How Book Profit Is Calculated
Book profit is the net profit in the profit and loss account, prepared under the Companies Act, with the additions and deductions that section 115JB lists. It is not the same as taxable income.
| Adjustment | Direction |
|---|---|
| Income tax paid or payable, and provisions for it | Add back |
| Amounts carried to reserves | Add back |
| Dividend paid or proposed | Add back |
| Deferred tax expense | Add back |
| Provision for unascertained liabilities | Add back |
| Provision for fall in the value of an asset | Add back |
| Expenses linked to income exempt under sections 10, 11 and 12 | Add back |
| Amounts withdrawn from reserves, where credited to the account | Deduct |
| Income exempt under sections 10, 11 and 12, if credited | Deduct |
| Lower of brought forward loss and unabsorbed depreciation | Deduct |
| Deferred tax credited to the account | Deduct |
Some items carry conditions, such as the treatment of income under section 10AA. A chartered accountant certifies the book profit, so use the section text and a professional for the final figure.
How to Calculate MAT Step by Step
You calculate MAT by comparing two tax figures and paying the higher one, in five steps.
Find the book profit
Take the net profit in the profit and loss account and make the additions and deductions that section 115JB lists.
Compute MAT
Multiply the book profit by 15% and add the surcharge, if any, and the 4% health and education cess.
Compute normal tax
Work out the tax on total income at the rate that applies to the company, with surcharge and cess.
Pay the higher figure
The company pays whichever of the two amounts is higher for the year.
Record the credit
If MAT is higher, the excess over normal tax is MAT credit, carried forward for 15 years.
MAT Worked Example
A company with a taxable income of Rs 30,00,000 and a book profit of Rs 75,00,000 pays MAT of Rs 11,70,000, because that is higher than its normal tax of Rs 9,36,000. The excess of Rs 2,34,000 is carried forward as MAT credit.
| Step | Working | Amount |
|---|---|---|
| Normal tax | Rs 30,00,000 x 30%, plus 4% cess | Rs 9,36,000 |
| MAT | Rs 75,00,000 x 15%, plus 4% cess | Rs 11,70,000 |
| Tax payable | The higher of the two | Rs 11,70,000 |
| MAT credit | Rs 11,70,000 - Rs 9,36,000 | Rs 2,34,000 |
No surcharge applies in this example, since both figures are below Rs 1 crore.
MAT Credit and Its Carry Forward
MAT credit is the tax paid under MAT in excess of the normal tax, and section 115JAA lets a company carry it forward for 15 assessment years. The limit was 10 years before assessment year 2018-19.
The credit rules sit in section 115JAA, which you can read at incometaxindia.gov.in.
MAT Credit Over Five Years
Credit builds in years when MAT is higher, and it is used in years when normal tax is higher. The table follows one company over five assessment years.
| Assessment year | MAT | Normal tax | Tax paid | Credit earned | Credit used | Credit balance |
|---|---|---|---|---|---|---|
| 2020-21 | 8,00,000 | 5,00,000 | 8,00,000 | 3,00,000 | 0 | 3,00,000 |
| 2021-22 | 9,00,000 | 6,50,000 | 9,00,000 | 2,50,000 | 0 | 5,50,000 |
| 2022-23 | 10,00,000 | 7,00,000 | 10,00,000 | 3,00,000 | 0 | 8,50,000 |
| 2023-24 | 7,00,000 | 10,00,000 | 10,00,000 | 0 | 3,00,000 | 5,50,000 |
| 2024-25 | 6,00,000 | 11,00,000 | 11,00,000 | 0 | 5,00,000 | 50,000 |
In 2023-24 the gap between normal tax and MAT is Rs 3,00,000, so that much credit is used. In 2024-25 the gap is Rs 5,00,000, and Rs 50,000 of credit is left for later years.
MAT and the Section 115BAA Regime
A domestic company that opts for section 115BAA pays tax at 22% and does not pay MAT. The effective rate is about 25.17% with the 10% surcharge and 4% cess.
| Route | Rate | Tax payable |
|---|---|---|
| Normal rates plus MAT | 30% on income, MAT 15% on book profit | Rs 11,70,000 |
| Section 115BAA | 22% plus 10% surcharge and 4% cess | Rs 7,55,040 |
The 115BAA route costs less here, but it gives up the usual deductions and any MAT credit, and the option cannot be withdrawn. Model it before you opt.
Difference Between MAT and AMT
MAT is for companies and AMT is for everyone else who claims certain deductions. MAT works on book profit, and AMT works on adjusted total income.
| Basis | MAT | AMT |
|---|---|---|
| Section | 115JB | 115JC |
| Applies to | Companies | LLPs, firms and some other non-corporates |
| Charged on | Book profit | Adjusted total income |
| Rate | 15% | 18.5% |
| Threshold | None | Adjusted total income above Rs 20 lakh |
| Credit | 15 years under 115JAA | 15 years under 115JD |
For a wider view of how these levies fit together, see Types of Taxes in India.
Tax Planning Under MAT
The aim is to avoid paying MAT in years you do not need to, and to use the credit before it expires. Plan the regime choice and the timing of profits and deductions together.
A company that spends on social causes should also read CSR Under Section 135, and one that crosses the audit limit should read Tax Audit Under Section 44AB.
Frequently Asked Questions: Minimum Alternate Tax (MAT)
Disclaimer: MAT rules, surcharge and section numbers change by Finance Act, and the Income-tax Act, 2025 applies from 1 April 2026. Confirm the position for your year on incometaxindia.gov.in or with a chartered accountant. This page is general information and not tax or legal advice.