Summary: The Finance Act, 2026 changes the economics of Minimum Alternate Tax (MAT) by reducing the rate from 15% to 14% while making MAT a final tax for companies remaining in the regular regime, with no fresh MAT credit from tax year 2026-27. Accumulated credit under section 115JAA of the Income-tax Act, 1961 remains available, subject to the fifteen-year limit, but domestic companies can use it only after opting for the concessional regime under section 200 or section 201, with annual set-off restricted to 25% of tax payable on total income. Companies in those regimes do not pay MAT. This makes the choice of tax regime particularly important for companies with unused credit and eligible start-ups considering the section 140 profit deduction. Although the start-up deduction can reduce taxable income to nil, MAT may still apply to book profit and cannot be carried forward as fresh credit. The article compares effective tax rates, illustrates the effect on a company with brought-forward MAT credit, and examines the implications for manufacturing start-ups, brought-forward losses and the timing of regime elections. It also identifies uncertainty concerning whether a company can defer its move to the concessional regime without losing access to accumulated MAT credit.
Where MAT now sits
Section 115JB of the 1961 Act has been replaced by section 206 of the 2025 Act, which now carries MAT for companies in sub-section (1) and AMT for non-corporates in sub-section (2). Book profit remains the starting point: the profit in the statement of profit and loss, prepared under Schedule III or the governing enactment, adjusted by the listed additions and reductions.
What the Finance Act, 2026 changed
Three changes matter.
(a) The rate. MAT is now 14% of book profit instead of 15%.
(b) Final tax. The clauses that created, carried forward and set off MAT credit were omitted, so no fresh credit accrues from tax year 2026-27.
(c) A gate for the old balance. Credit accumulated under section 115JAA up to 31 March 2026 is preserved, but only a domestic company that has opted under section 200(5) or 201(2) can use it. Set-off is limited to 25% of the tax payable on total income each year, and nothing can be used beyond the fifteenth tax year after the credit first arose.
Section 200 and 201 companies pay no MAT
A company in the new regime is exempt from MAT. So the MAT decision is now really the regime decision.
A worked example
A company opts for section 200 from tax year 2026-27. Book profit is ₹500 lakh, total income is ₹400 lakh, and brought forward MAT credit is ₹60 lakh. Tax at 22% on ₹400 lakh is ₹88 lakh (before surcharge and cess, to keep the arithmetic clean). Credit set-off is capped at 25%, which is ₹22 lakh. Tax payable is ₹66 lakh and ₹38 lakh of credit moves forward. Book profit plays no part once the company is in section 200. Only the use of old credit depends on the MAT history.
Must the company move in the first year?
This is open. The CBDT FAQs refer both to companies moving from tax year 2026-27 and to those moving in 2026-27 or later years. One published analysis concludes that a later move can still preserve the credit, but it also notes that the fifteen-year clock keeps running and that there is no binding clarification. Treat deferral as a risk position, not a safe harbour.
Start-ups: does the section 140 holiday still pay?
1. Section 80-IAC of the 1961 Act is now section 140. It gives 100% of eligible profits for any three consecutive tax years out of ten, for a company or LLP incorporated on or after 1 April 2016 and before 1 April 2030, holding DPIIT recognition and an Inter-Ministerial Board certificate. The Finance Act, 2026 raised the turnover ceiling from ₹100 crore to ₹300 crore.
2. The holiday has a catch, in two parts.
(a) First, section 200 computes income without any Chapter VIII deduction other than sections 146 and 148. Section 140 sits in Chapter VIII. A start-up claiming it therefore stays in the regular regime, where MAT applies.
(b) Second, the deduction takes total income to nil but leaves book profit untouched. MAT is charged on book profit at 14% plus surcharge and cess, and it is now final. Earlier, MAT paid during a holiday could be banked as credit. Now it cannot.
3. So the comparison is not nil tax against 22%. It is MAT against section 200:
| Route | Base rate | Approx. effective rate | Credit |
|---|---|---|---|
| Section 200 | 22% | 25.2% | Not applicable |
| Section 140 with MAT | 14% of book profit | 14.6% to 16.3% | None, final tax |
| Section 201 (legacy only) | 15% | 17.2% | Not applicable |
4. On ₹5 crore of profit, section 200 costs about ₹125.8 lakh a year and section 140 with MAT costs about ₹77.9 lakh. That saves roughly ₹48 lakh a year, or about ₹1.44 crore over three years. It is a real saving of about ten points on profit, not a full exemption. Whether it justifies the Inter-Ministerial Board certificate, the MAT audit report and the compliance load depends on how much profit the company expects in the window.
5. These figures assume that book profit equals taxable profit, surcharge of 7% in the regular regime for profit between ₹1 crore and ₹10 crore and 10% under section 200, and cess of 4%.
Manufacturing start-ups
Section 201 has been closed to new entrants since 31 March 2024, so the benchmark for a new manufacturing start-up is also 22%. For the few that still qualify, section 201 costs about 17.2% effective against MAT at 14.6% to 16.3%. The gap is at most about 2.6 points, for three years only, in exchange for giving up a permanent lower rate. There the holiday rarely makes sense.
Three other things that move the answer
1. Three further points can change the outcome.
(a) Brought forward losses. Section 200 lets ordinary business losses be set off in full, excluding those attributable to the barred deductions. In MAT, only the lesser of brought forward loss and unabsorbed depreciation as per books reduces book profit, and nothing where either is nil. A loss-heavy start-up can therefore pay MAT even when its taxable income is small.
(b) Legacy credit. A company holding old MAT credit can use it only after opting for section 200, which means giving up section 140.
(c) After the holiday. The company reverts to the regular rate unless it opts for section 200 later. That option cannot be withdrawn once exercised.
2. Model both routes on projected book profit before the first return. The section 200 option must be exercised by the return due date.
