Minimum Alternate Tax for Companies under Income Tax Act, 2025

PROVISIONS RELATED TO MINIMUM ALTERNATE TAX (MAT) FOR COMPANIES UNDER INCOME TAX ACT, 2025

Like Sec 115JB of Income-tax Act 1961, the New Act (Income-tax Act 2025) is also having the option to choose pay the Income-tax under Regular method or under New Tax Regime (Sec 206) by Companies.

 1. What is Minimum Alternate Tax (MAT) and when does it apply to a Company?

Where the Income-tax payable on the Total Income of a Company, computed as per the normal provisions of the Act, is less than the Minimum Alternate Tax (MAT) computed on the Book Profit, then:

a. The Book Profit shall be deemed to be the Total Income of the Company for that Tax Year; and

b. The Company shall be liable to pay Income-tax equal to the MAT

In simple terms, MAT ensures that every company pays a minimum level of tax, irrespective of the deductions and exemptions claimed under the normal provisions of the Act.

Illustration:

2. What is the Rate of MAT applicable to Companies under Sec 206(1)(b) for the Tax Year 2026-27?

Note: The above rates are the base rates. Applicable Surcharge and Health & Education Cess as prescribed by the Finance Act of the respective Tax Year shall be added to arrive at the effective MAT rate.

Education Cess: 4%

3. What is “Book Profit” for the purposes of MAT under Sec 206(1)(c)?

Book Profit means the Net Profit as shown in the Statement of Profit & Loss for the relevant Tax Year, prepared in accordance with Sec 206(1)(f), after making the following additions and deductions:

Amounts to be ADDED to Net Profit:

Amounts to be DEDUCTED from Net Profit:

 (4) How should the Statement of Profit & Loss be prepared for MAT purposes under Sec 206(1)(f)?

 Note: As per Sec 206(1)(g), the accounting policies, accounting standards and depreciation rates used for MAT computation must be the same as those adopted for preparing accounts laid before the Annual General Meeting under Sec 129 of the Companies Act, 2013. The company cannot adopt a different set of accounting policies for MAT purposes.

4. What are the special adjustments required for Companies following Indian Accounting Standards (Ind AS )?

Under Sec 206(1)(d)(ix), Companies following Ind AS are required to make the following additional adjustments to Book Profit:

 Note on Transition Amount: The Transition Amount means adjustments made in Other Equity (excluding Capital Reserve and Securities Premium) on the Convergence Date (i.e., first day of first Ind AS reporting period), excluding certain specified items like revaluation surplus, FVOCI gains/losses, deemed cost adjustments etc.

5. What are the special provisions for Companies under Insolvency / NCLT proceedings under Sec 206(1)(d)(vi) & (vii)?

Note: Unlike the normal deduction under Sec 206(1)(c)(xvi) — where only the lower of loss b/f or unabsorbed depreciation is deductible — these distressed companies get the benefit of deducting the aggregate (i.e., both loss AND depreciation) from Book Profit. This is a substantial relief.

6. A Limited, a Domestic Company, has entered into an Advance Pricing Agreement (APA) with the Income Tax Department. Due to the APA, the Book Profit of earlier years has increased. What is the remedy available to A Limited?

As per Sec 206(1)(i), where the Book Profit of any past year increases due to:

• Income included on account of an APA under Sec 168; or
• A Secondary Adjustment under Sec 170

And the company has not utilised the MAT credit of those years in any subsequent year — then, the Assessing Officer shall, on an application by the assessee:

• Recompute the Book Profit of past years and MAT payable thereon in the prescribed manner; and
• The provisions of Sec 287 (rectification) shall apply accordingly, with the 4-year period reckoned from the end of the Tax Year in which the application is received

Important Note: As per Sec 206(1)(j), no interest shall be payable to the assessee on any refund arising from such re-computation.

7. Does MAT apply to Foreign Companies also?

MAT under Sec 206(1) shall NOT apply to a Foreign Company in any of the following three situations:

8. What is MAT Credit and how is it computed under Sec 206(1)(m)?

The Finance Act, 2026 has omitted all the provisions related to MAT credit under Income Tax Act, 2025.

However, the MAT credit available under the earlier Income Tax Act, 1961 can be adjusted under Sec 536 (Transitional provisions), subject to the condition of maximum period of 15 years (Old Sec 115JAA).

The Finance Act, 2026 also amended Sec 206, to enable a Company which will opt to pay tax under New Tax Regime U/s. 200 also eligible for adjustment of MAT credit available under the earlier Income Tax Act, 1961, subject to the following conditions.

The MAT credit as on 31^st March 2026 which is allowed to be carried forward to the assessee under the provisions of section 115JAA of the Income-tax Act 1961:

a. 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.

b. the remaining credit shall be carried forward to the subsequent tax year; and

c. 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.

d. What is the Accountant’s Report requirement for MAT under Sec 206(1)(s)?

Every Company to which MAT applies must furnish a Report in the Prescribed Form from an Accountant (i.e., a Chartered Accountant), certifying that the Book Profit has been correctly computed:

As per Rule 137, Form of report for computation of book profit of companies shall be made in Form No. 66.

10. Is CSR Expenditure required to be added back while computing Book Profit under MAT?

No. CSR (Corporate Social Responsibility) expenditure debited to the Statement of Profit & Loss cannot be excluded from the final accounts for the purpose of computing Book Profit under MAT.

This position has been settled by the Delhi High Court in PCIT v. Sony India (P.) Ltd. [2025] 477 ITR 576 (Delhi), dated 30-09-2024, wherein it was held that there is no provision under the MAT provisions of the Act which requires CSR expenditure to be adjusted while arriving at Book Profit. Except for the adjustments expressly enumerated in the relevant provisions, Book Profit must be determined strictly on the basis of accounts maintained in accordance with generally accepted accounting principles and applicable law.

The Legal Position under the New Act:

Under Sec 206(1)(c) of the Income Tax Act, 2025 [equivalent to Sec 115JB(2) of the Income Tax Act, 1961], the list of items to be added to or deducted from Net Profit for arriving at Book Profit is exhaustive and not illustrative. Every addition or deduction permitted under Sec 206(1)(c) and 206(1)(d) is anchored to an actual entry in the books of accounts — something that has been specifically debited or credited to the Statement of P&L.

A plain reading of Sec 206(1)(c)(i) to (x) [additions] and Sec 206(1)(c)(xi) to (xvi) [deductions] reveals that CSR expenditure does not find mention anywhere in this exhaustive list. The legislature has therefore consciously chosen not to include CSR expenditure as an item requiring adjustment.

The Contrast that Strengthens the Argument:

It is pertinent to note that the legislature has specifically included “expenditure relatable to any income to which provisions of Sec 11 apply” as an addition under Sec 206(1)(c)(vi) [equivalent to the corresponding provision in Sec 115JB(2) of the 1961 Act]. This shows that wherever the legislature intended a specific category of expenditure to be added back to Book Profit, it has expressly said so. The complete silence on CSR expenditure is therefore not an oversight — it is a clear indicator of legislative intent that CSR expenditure shall not be disturbed while computing Book Profit.

The Assessing Officer has no statutory authority to add back CSR expenditure to Book Profit, and any such addition is liable to be deleted.

11. Can the Assessing Officer reopen a completed MAT assessment merely because certain income allegedly escaped assessment under the Normal Provisions?

Not necessarily. Where a Company has been assessed and has paid tax under MAT on Book Profit, the Assessing Officer cannot validly reopen the assessment under Sec 279/280 of the Income Tax Act, 2025 [equivalent to Sec 147/148 of the Income Tax Act, 1961] if the proposed addition to income under the Normal Provisions would still result in the total tax payable being less than the MAT already paid by the Company.

The Judicial Position:

This principle was laid down by the Gujarat High Court in Adani Wilmar Ltd. v. ACIT [2024] 301 Taxman 84 (Gujarat), dated 03-09-2024. In this case, the Assessing Officer sought to reopen assessments under Sec 148 of the 1961 Act on the ground that the assessee had availed accommodation entries (bogus bills). The Court held that since, even after adding the alleged escaped income to the Normal Provisions income, the aggregate tax payable was still less than the MAT already paid, no income can be said to have “escaped assessment.” The foundational condition for reopening — that the Assessing Officer must have “reason to believe” that income has escaped assessment — was simply not satisfied on facts.

The Statutory Hook under the New Act:

Under Sec 285(2) of the Income Tax Act, 2025 [equivalent to the proviso to Sec 147 of the 1961 Act], it is expressly provided that proceedings initiated under Sec 279 shall be dropped on a claim made by the assessee showing that:

(a) the assessee had been assessed on an amount not lower than what he would be rightly liable for, even if the income alleged to have escaped assessment had been taken into account; and

(b) he has not impugned any part of the original assessment order.

In the case of a MAT-assessed company, where the tax paid on Book Profit exceeds what would be payable even after the proposed addition under Normal Provisions, the condition in Sec 285(2)(a) is squarely satisfied — the assessee has already been assessed on an amount not lower than his correct liability.

Illustration:

Key Principle: Where a Company is governed by MAT and the tax paid thereunder exceeds what would be payable even after the proposed addition under Normal Provisions, the notice under Sec 280 of the Income Tax Act, 2025 [Sec 148 of the 1961 Act] is without jurisdiction and is liable to be quashed.

12. Where a Provision for Diminution in Value of Investment has been actually written off in the books of accounts, can it be added back to Book Profit under MAT?

No. Where a provision for diminution in the value of an investment has been actually written off — i.e., the carrying value of the investment has been correspondingly reduced on the asset side of the Balance Sheet — it cannot be added to Book Profit for MAT purposes merely because it bears the nomenclature of a “provision.”

The Legal Basis:

Under Sec 206(1)(c)(ix) of the Income Tax Act, 2025 [equivalent to Sec 115JB(2)(i) of the Income Tax Act, 1961], the “amount or amounts set aside as provision for diminution in the value of any asset, if debited to the Statement of P&L” is required to be added back to Net Profit while computing Book Profit.

The critical question is: what is the true nature of the transaction? If the amount, though labelled as a “provision,” has actually been written off by reducing the carrying value of the asset in the Balance Sheet — i.e., the investment no longer appears at its original value in the books — then the transaction is in substance a write-off, not a mere provision.

The Judicial Position — Substance over Form:

The Calcutta High Court in PCIT-2 v. Balmer Lawrie and Company Ltd. [2023] 455 ITR 198 (Calcutta), dated 13-04-2023, affirming the view of the Gujarat High Court in Pr. CIT v. Torrent (P.) Ltd. [2019] 266 Taxman 151 (Gujarat), held as follows:

“The amount though bearing the nomenclature of provision for diminution in value of investment, having been actually written off, cannot be added to the book profit under Sec 115JB(2)(i) of the Act.”

The Courts reasoned that where the provision had been credited against the asset in the Balance Sheet (thereby reducing the carrying amount of the investment), the substance of the transaction was that of an actual write-off. In such a case, Sec 206(1)(c)(ix) [old Sec 115JB(2)(i)] is simply not attracted — because what exists in the books is not a “provision” but an actual reduction of asset value.

Key Principle: For MAT purposes, substance prevails over form. The mere label of “provision” in the P&L does not automatically trigger the addition under Sec 206(1)(c)(ix), if the investment value has actually been reduced in the Balance Sheet. The Assessing Officer must look at the true nature of the transaction, not merely its nomenclature.

13. Can the Assessing Officer add back the disallowance computed under Sec 14 read with Rule 14 while computing Book Profit under MAT?

No. The Assessing Officer has no power to add back the disallowance computed under Sec 14 read with Rule 14 of the Income Tax Rules, 2026 [equivalent to Sec 14A read with Rule 8D of the Income Tax Rules, 1962] while computing Book Profit under Sec 206 of the Income Tax Act, 2025 [equivalent to Sec 115JB of the Income Tax Act, 1961]. To appreciate why, it is important to understand the fundamental philosophical difference between MAT and the Sec 14 / Rule 14 disallowance mechanism.

Nature of MAT

MAT under Sec 206 is fundamentally a tax on Book Profit — i.e., the Net Profit as shown in the Statement of Profit & Loss, subject only to the specific adjustments expressly enumerated under Sec 206(1)(c) and 206(1)(d). A plain reading of every single item in that exhaustive list reveals one consistent thread running through all of them — the phrase “if debited to the Statement of Profit & Loss” or “if credited to the Statement of Profit & Loss.”

This is not a coincidence. It reflects the foundational philosophy of MAT — that Book Profit is rooted in what the accounts actually show. Every adjustment under Sec 206 is anchored to a real, verifiable entry in the books of accounts. For example:

• Income-tax paid/payable actually debited to Statement of P&L — added back [Sec 206(1)(c)(i)]
• Depreciation actually debited to Statement of P&L — added back [Sec 206(1)(c)(vii)]
• Expenditure relatable to Sec 11 income actually debited to Statement of P&L — added back [Sec 206(1)(c)(vi)]

In every case, MAT operates strictly within the four corners of the books of accounts.

Nature of Sec 14 read with Rule 14 — A Deeming Fiction Outside the Books:

Sec 14 of the Income Tax Act, 2025 [equivalent to Sec 14A of the 1961 Act] read with Rule 14 of the Income Tax Rules, 2026 [equivalent to Rule 8D of the 1962 Rules] is an entirely different creature. It does not look at what has actually been debited in the books. Instead, it assumes and computes a notional disallowance through a mathematical formula — being the aggregate of:

(a) expenditure directly relating to exempt income; and

(b) an amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investments, income from which does not form part of total income —

subject to the condition that the aggregate shall not exceed the total expenditure claimed by the assessee [Rule 14(2)].

This formula-based computation is entirely independent of the actual books of accounts. It is a tax fiction — a notional amount conjured by a mathematical formula, which may never have been debited to the Statement of P&L at all. In fact, an assessee may well have claimed no expenditure whatsoever in relation to exempt income — yet Rule 14 can still compute a disallowance based purely on the value of investments.

The Core Argument — Tax Fiction Cannot Enter MAT:

Since MAT under Sec 206 is rooted in accounting reality — in what the Statement of P&L actually shows — a deeming fiction created outside the books by a formula under Rule 14 has simply no hook in Sec 206 to enter the computation of Book Profit. What has never been debited in the Statement of P&L cannot be added back while computing Book Profit. Allowing such an addition would mean substituting a tax fiction for accounting reality — which is fundamentally contrary to the entire scheme and philosophy of MAT.

Judicial Support:

This position has been conclusively settled by the Supreme Court in:

• Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC) — which held that only adjustments expressly provided under the MAT provisions can be made to Book Profit, and nothing beyond; and
• Malayala Manorama Co. Ltd. v. CIT [2008] 300 ITR 251 (SC) — which specifically held that the Explanation to Sec 115JB(2) [now Sec 206(1)(c) and (d)] does not provide for addition of disallowance under Sec 14A read with Rule 8D, and the Assessing Officer is not empowered to make such addition while calculating Book Profit.

This has been recently reaffirmed by the ITAT Kolkata in Veedol Corporation Ltd. v. DCIT [2026] 217 ITD 24 (Kolkata Trib.), dated 13-01-2026, squarely under the provisions of the Income Tax Act, 1961, and the ratio applies with equal force to Sec 206 of the Income Tax Act, 2025, since the structure and philosophy of Book Profit computation remain identical.

Key Principle: MAT under Sec 206 of the Income Tax Act, 2025 is a tax on what the books show — not on what a formula assumes. A deeming disallowance computed outside the books of accounts under Sec 14 read with Rule 14 of the Income Tax Rules, 2026 has no place in the computation of Book Profit, since Sec 206(1)(c) and 206(1)(d) contain no provision for such addition.

****

Disclaimer: Views expressed are purely personal and for academic purpose only. Readers are advised to refer to the Income-tax Act, 1961 and the Income-tax Act, 2025 before taking any decision. The author is not responsible for consequences arising from reliance on this article.