INDEX
What is MAT (Minimum Alternate Tax)?
What is AMT (Alternate Minimum Tax)?
Key Differences Between MAT and AMT
Why MAT and AMT Are Important
Recent Developments & Relaxations
MAT (Minimum Alternate Tax) and AMT (Alternate Minimum Tax)
India’s Income Tax system allows various exemptions, deductions, and incentives to promote business growth and investment. However, these benefits often reduce or eliminate taxable income, even for companies earning substantial profits.
To ensure every taxpayer contributes a fair share, the government introduced Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) provisions.
This article explains the concept, applicability, computation, and differences between MAT and AMT in simple terms.
1. What is MAT (Minimum Alternate Tax)?
Concept
Minimum Alternate Tax (MAT) is a provision under Section 115JB of the Income Tax Act, 1961. It ensures that companies (domestic or foreign) pay a minimum amount of tax, even if they claim multiple deductions or exemptions under normal tax provisions.
In simple words, even if a company’s regular taxable income is low or nil due to tax incentives, it still needs to pay tax on its book profits as per MAT.
Applicability of MAT
Applicable only to companies (both Indian and foreign companies with income taxable in India).
Not applicable to non-corporate taxpayers such as individuals, firms, LLPs, or HUFs.
However, AMT applies to them (explained later).
MAT Rate (as per Finance Act, 2024–25)
| Type of Company | MAT Rate | Surcharge & Cess |
|---|---|---|
| Domestic Company | 15% of book profit | Plus surcharge (if applicable) and 4% Health & Education Cess |
| Foreign Company | 15% of book profit | Plus applicable surcharge and cess |
Computation of MAT
MAT = 15% of Book Profit (plus surcharge and cess)
Book Profit is calculated as per the Profit & Loss Account prepared in accordance with Schedule III of the Companies Act, 2013, adjusted by adding or subtracting certain items specified under Section 115JB (like income tax, provisions, deferred tax, etc.).
Example:
A company’s profit as per P&L = ₹1 crore
After adjustments under Section 115JB, book profit = ₹1.2 crore
Regular tax liability = ₹10 lakh
MAT liability = 15% of ₹1.2 crore = ₹18 lakh
✅ The company must pay ₹18 lakh (since MAT > regular tax).
MAT Credit
If a company pays MAT in a year because it is higher than the regular tax, it can claim MAT credit in subsequent years.
MAT credit = MAT paid – regular tax liability
Can be carried forward for 15 assessment years.
In future years, if regular tax exceeds MAT, MAT credit can be adjusted.
2. What is AMT (Alternate Minimum Tax)?
Concept
Alternate Minimum Tax (AMT) is governed by Sections 115JC to 115JF of the Income Tax Act.
It ensures that non-corporate taxpayers who claim certain deductions or incentives (like under Chapter VI-A or Section 10AA) pay a minimum tax, similar to MAT for companies.
Applicability of AMT
Applicable to:
Individuals, HUFs, Firms, LLPs, AOPs, BOIs who have claimed:
Deductions under Sections 80H to 80RRB (Chapter VI-A Part C); or
Deduction under Section 10AA (for SEZ units); or
Certain deductions under Section 35AD (for specified business).
Threshold Exemption:
If the adjusted total income does not exceed ₹20 lakh, AMT provisions do not apply to individuals, HUFs, AOPs, BOIs, or artificial juridical persons.
AMT Rate
| Category | AMT Rate | Surcharge & Cess |
|---|---|---|
| Individuals, HUFs, Firms, LLPs, etc. | 18.5% of adjusted total income | Plus surcharge (if applicable) and 4% cess |
Computation of AMT
AMT = 18.5% of Adjusted Total Income (plus surcharge and cess)
Adjusted Total Income = Total income before giving effect to:
Deductions claimed under Chapter VI-A (Part C)
Deduction under Section 10AA
Deduction under Section 35AD (less depreciation)
Example:
A partnership firm has:
Taxable income = ₹10 lakh
Deduction under Section 10AA = ₹20 lakh
→ Adjusted Total Income = ₹30 lakh
→ AMT = 18.5% × ₹30 lakh = ₹5.55 lakh
If normal tax = ₹3 lakh, then firm must pay ₹5.55 lakh under AMT.
AMT Credit
Like MAT, any excess AMT paid can be carried forward for 15 assessment years and adjusted in future years when regular tax liability exceeds AMT.
3. Key Differences Between MAT and AMT
| Basis | MAT | AMT |
|---|---|---|
| Applicable To | Companies (Domestic & Foreign) | Non-corporate taxpayers (Individuals, HUFs, Firms, LLPs, etc.) |
| Governing Section | Section 115JB | Sections 115JC to 115JF |
| Tax Base | Book Profit | Adjusted Total Income |
| Rate | 15% | 18.5% |
| Objective | To ensure companies pay minimum tax | To ensure non-corporates claiming deductions pay minimum tax |
| Carry Forward of Credit | 15 years | 15 years |
4. Why MAT and AMT Are Important
Prevents tax avoidance: Ensures all taxpayers pay some minimum tax even after claiming incentives.
Encourages balanced tax planning: Businesses can claim deductions but must be ready to pay a base-level tax.
Improves tax equity: Maintains fairness between profit-making entities and those claiming tax shelters.
Ensures revenue stability: Helps the government maintain steady tax collections despite incentives.
5. Recent Developments & Relaxations
MAT not applicable to companies opting for the new concessional tax regime under Section 115BAA or 115BAB.
AMT not applicable to taxpayers opting for the new regime under Section 115BAC (individuals) or 115BAD (co-operatives).
MAT rate reduced from 18.5% to 15% to align with global standards.
Key Takeaways
Both MAT and AMT act as safeguards against excessive tax avoidance.
While MAT applies to companies, AMT ensures that non-corporate entities claiming significant tax deductions also contribute a minimum amount.
Understanding their applicability, computation, and credit mechanism is crucial for tax planning and compliance under the Income Tax Act.