The Finance Bill, 2026 proposes a significant rationalisation of the Minimum Alternate Tax (MAT) framework under section 206 of the Income-tax Act, 2025 to ease transition between tax regimes and reduce complexity. MAT, currently levied at 15% of book profits under the old regime with a carry-forward credit for 15 years, is proposed to become a final tax in the old regime at a reduced rate of 14%, with no new MAT credit generated. Existing MAT credit accumulated up to 31 March 2026 may be set off only in the new tax regime—for domestic companies, capped at 25% of regular tax liability, and for foreign companies, limited to the excess of normal tax over MAT in a year. The amendments also expand exclusions from MAT for specified non-resident businesses under presumptive taxation, refine rules for IFSC and offshore units, and clarify tonnage tax certification requirements. These changes, effective from 1 April 2026 (AY 2026-27), aim to simplify compliance and facilitate a smoother shift to the new tax regime.
Rationalization of Minimum Alternate Tax provisions
The existing provisions under section 206 of the Income-tax Act, 2025 (the Act) provide for Minimum Alternate Tax (MAT) which is applicable for companies. This tax is charged on the Book profit of the assessee at the rate of 15% for corporates (other than units located in an International Financial Services Centre). In case the MAT is higher than the income-tax payable on the company’s total income computed under normal tax provisions, the assessee pays MAT.
2. When a company pays MAT when it is higher than regular tax, the excess amount paid is allowed as a tax credit. This credit can be carried forward up to 15 years and set off in future years where the company’s regular tax liability exceeds the MAT liability. The MAT regime is presently in place only for the old tax regime.
3. It is proposed that the tax paid under provisions of MAT be made as final tax in the old regime and no new MAT credit may be allowed. However, the tax rate of MAT has been reduced to 14% of book profit from the existing 15%. Further, set-off of MAT credit may be allowed only in the new tax regime for domestic companies to the extent of 25% of the tax liability. In the case of foreign companies, set off is proposed to be allowed to the extent of the difference between the tax on the total income and the minimum alternate tax, for the tax year in which normal tax is more than MAT.
4. These amendments will allow companies to make a smooth transition from the old tax regime (with deductions and exemptions) to the new tax regime.
5. This amendment is proposed to take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.
[Clause 50]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 50 of the Bill seeks to amend section 206 of the Income-tax Act relating to special provision for minimum alternate tax and alternate minimum tax.
The said section, inter alia, provides for minimum alternate tax applicable only for companies. This tax is charged on the book profit of the assessee and not the taxable income computed under the provisions of the Act. The rate of minimum alternate tax is 15% for corporates other than units located in an International Financial Services Centre. In case the minimum alternate tax is higher than the income-tax payable on the company’s total income computed under normal tax provisions, the assessee pays minimum alternate tax and is allowed credit on the difference.
If a company pays minimum alternate tax when it is higher than regular tax, the excess amount paid is allowed as a tax credit which can be carried forward up to fifteen years and can be set off in future years where the company’s regular tax liability exceeds the minimum alternate tax liability.
It is proposed that minimum alternate tax is to be made a final tax in the old regime and shall be liable to a tax rate of 14% instead of the existing 15%. Further, set-off of minimum alternate tax credit is to be allowed only in the new tax regime for domestic companies. However, the amount of set off shall be restricted to 25% of the tax liability. In the case of foreign companies, set off is proposed to be allowed to the extent of the difference between the tax on the total income and the minimum alternate tax for the tax year in normal tax is more than minimum alternate tax.
Clause (l) of sub-section (1) of the said section provides for the provisions pertaining to minimum alternate tax shall not apply to any assessee, being a foreign company, where the total income of the assessee comprises solely of profits and gains from business referred to in section 61(2) (Table: Sl. Nos. 1, 3, 4 and 5), and such income has been offered to tax at the rates specified in the respective sections. However, certain other specified businesses of non-residents who have also opted for presumptive taxation under section 61 have not been so excluded.
It is further proposed to amend the said clause to substitute sub-clause (iii) so as to provide that the specified businesses shall also be excluded from the applicability of minimum alternate tax.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Clause 51 of the Bill seeks to substitute sections 217 and 218 of the Income-tax Act, 2025 relating to benefit under Chapter to be available in certain cases even after assessee becomes resident and Chapter not to apply if the assessee so chooses, respectively, with new sections.
The proposed section 217 provides for application of benefits under sections 212 to 216.
It is proposed to substitute the said sections so as to give effect to the proposal related to taxation of income of Offshore Banking Units and Units of International Financial Services Centre in non-holiday period.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Clause 52 seeks to amend section 227 of the Income-tax Act, 2025 relating to computation of tonnage income.
Sub-section (4) of the said section provides that the tonnage shall mean the tonnage of a ship or inland vessel, as the case may be, indicated in the certificate referred to in subsection (9) of the said section.
It is proposed to amend clause (a) of sub-section (4) of the said section so as to substitute the word “certificate” with the words “valid certificate”.
Sub-clause (iii) of clause (b) of sub-section (9) of the said section provides that in case of inland vessel registered in India, a valid certificate shall mean a certificate issued under the Inland Vessels Act, 2021.
It is proposed to amend the said sub- clause so as to substitute the word “certificate” with the words “certificate of registration”.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation the tax year 2026-2027 and subsequent years.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
50. Amendment of section 206.
In section 206 of the Income-tax Act,––
(a) in sub-section (1),––
(i) in clause (b), in sub-clause (ii), for the figures and symbol “15%”, the figures and symbol “14%” shall be substituted;
(ii) in clause (i), for sub-clause (ii), following sub-clause shall be substituted, namely:––
“(ii) the assessee has not utilised the credit of tax paid under section 115JAA of the Income-tax Act, 1961, in any subsequent tax year ending on or before the 31st March, 2026,”;
(iii) in clause (l), in sub-clause (iii), the brackets, words, letters and figures “(Table: Sl. Nos. 1, 3, 4 and 5)” shall be omitted;
(iv) clauses (m), (n), (o) and (p) shall be omitted;
(v) in clause (q), in the opening portion, for the word “section”, the word “sub-section” shall be substituted;
(vi) clause (r) shall be omitted;
(viii) in clause (s), for the words “which this section”, the words “which this sub-section” shall be substituted;
(b) for sub-section (3), the following sub-sections shall be substituted, namely:––
“(3) (a) The provisions of this sub-section shall be applicable only to an assessee, being a domestic company, that has exercised the option under section 200(5) or section 201(2) for a tax year, beginning on or after the 1st April 2026.
(b) Where any amount of credit, in respect of tax paid, was allowed to be carried forward to the assessee under the provisions of section 115JAA of the Income-tax Act, 1961, as on 31st March, 2026,–
(i) such credit brought forward shall be allowed to be set off in any tax year to the extent of 25% of the tax payable on the total income computed as per the other provisions of this Act for that tax year;
(ii) the remaining credit shall be carried forward to the subsequent tax year; and
(iii) such carry forward or set off of tax credit shall not be allowed beyond the fifteenth tax year immediately succeeding the tax year in which the tax credit first became allowable under section 115JAA of the Income-tax Act, 1961.
(c) Where, as a result of any order passed under this Act, tax payable under this Act is decreased or increased, as the case may be, tax credit allowed to be set off under clause (b) shall also be decreased or increased, accordingly.
(d) In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008, the provisions of clauses (a) and (b) shall not apply 6 of 2009. to the successor limited liability partnership.
(4) (a) The provisions of this sub-section shall be applicable only to an assessee, being a foreign company.
(b) Where, any amount of credit in respect of tax paid was allowed to be carried forward to the assessee under the provisions of section 115JAA of the Income-tax Act, 1961, as on 31st March, 2026,––
(i) such tax credit shall be carried forward and set off in a tax year, when tax payable on the total income computed as per the provisions of this Act exceeds the minimum alternate tax computed as per provisions of sub-section (1);
43 of 1961.
(ii) such set off in respect of brought forward tax credit shall be allowed for any tax year to the extent of the difference between the tax liability on the total income computed as per the other provisions of this Act and the minimum alternate tax for that tax year; and
(iii) such carry forward or set off of tax credit shall not be allowed beyond the fifteenth tax year immediately succeeding the tax year in which the tax credit first became allowable under section 115JAA of the Income-tax Act, 1961.
(c) Where, as a result of any order passed under this Act, tax payable under this Act is decreased or increased, as the case may be, tax credit allowed to be set off under clause (b) shall also be decreased or increased, accordingly.
(d) In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008, the provisions of clauses (a) and (b) shall not apply to the successor limited liability partnership.
(5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee mentioned in this section.”.
