When the income tax payable on the total income of any company in any financial year is less than 18.5% of book profit of that company during the same financial year, then the tax payable by the company shall be deemed to be equal to 18.5% of the book profit. We call it Minimum Alternative Tax (MAT).

Book profit for above purpose means the net profit shown by the company as per profit and loss account according to Schedule VI of the Companies Act.

Example:-

  • Book Profit as per Profit and Loss Account Rs.2,86,00,000/=
  • Taxable Income for Income Tax Purpose (after making all the adjustments) 1,56,00,000/=
  • Income Tax at normal rates i.e. 30% on 1,56,00,000/= shall be 46,80,000/=
  • Minimum Alternative Tax 18.5% on Book Profit Rs. 2,86,00,000/= shall be 52,91,000/=

In above case, Minimum Alternative Tax is more than normal income tax. Therefore the company has to deposit Rs.52,91,000/= as tax plus education cess and surcharge as applicable.

Note: Education Cess 2% and Senior & Higher Education Cess 1% shall be added on the amount of normal tax or Minimum Alternative Tax.

Tax Credit for Minimum Alternative Tax (MAT)

When a company ha paid Minimum Alternative Tax for assessment year 2006-07 or any subsequent assessment year u/s 115J, it shall be allowed a tax credit to be set off against tax payable at normal rates in any of the ten subsequent assessment years. With effect from 01.04.17, the MAT credit can be carried forward up to 15 years from the year in which such credit becomes available for adjustment.

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