Union Budget 2026-27: Finance Ministry Proposes Major Overhaul to MAT Provisions for Companies:

Union Budget 2026-27: Finance Ministry Proposes Major Overhaul to MAT Provisions for Companies The Finance Minister of India, Smt. Nirmala Sitharam, presented the Union Budget 2026-27 on February 01, 2026, wherein she proposed several key changes to the Minimum Alternate Tax (MAT) provisions. Section 206 of the Income Tax Act 2025 contains provisions for Minimum Alternate Tax (MAT), which apply to companies. MAT is a type of minimum tax that companies have to pay when their tax calculated under normal income-tax rules is lower. As per the present rules, MAT is charged on the book profit of the taxpayer at the rate of 15% for corporates (except for units located in an International Financial Services Centre). Whenever the MAT amount is higher than the total income-tax liability computed as per normal tax provisions, the company is required to pay MAT instead of normal tax.

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Currently, when a company pays MAT because its value is more than its normal income tax liability, the extra amount paid as MAT is allowed as a tax credit. The company is allowed to carry forward this credit for up to 15 years, and it can be used for future years when the company's total income tax liability is more than the MAT liability. Presently, this MAT regime only applies to companies that opted for the old tax regime. The government is now planning to introduce some significant amendments to the rules related to MAT. Hence, it has given a proposal to rationalize MAT provisions, under which MAT paid under the old tax regime will become a final tax. This means that no new MAT credit will be allowed in the old regime. However, it also proposed to reduce the MAT rate from 15% to 14% of book profit in order to balance this change.

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Further proposed making changes to how existing MAT credit can be used under the new tax regime. For domestic companies, MAT credit will be allowed to be set off up to an extent of 25% of the total tax liability. On the other hand, for foreign companies, MAT credit can be set off only to the extent of the difference between normal tax on total income and MAT, and only in those years where normal tax is higher than MAT. These proposed amendments to the MAT provisions are set to take effect from April 01, 2026, and will apply to the tax year 2026-27 and onwards.