The Finance Act, 2026 has quietly reshaped the way Minimum Alternate Tax (MAT) works – especially when it comes to carrying forward and using existing MAT credit.

For many companies, the real question is no longer whether credit exists, but when and how it can actually be used.

Does shifting to the new tax regime in FY 2026-27 become a necessity, or is there room to wait without losing accumulated benefits? This article takes a closer look at the provisions, the intent behind them, and what it practically means for businesses.

The Finance Act, 2026 has made significant amendments to the provisions governing Minimum Alternate Tax (“MAT”) under Section 206 of the Income-tax Act, 2025 (“the Act”), with effect from 1st April, 2026.

The amendments, inter alia, reduce the MAT rate from 15% to 14%, treat MAT paid under the old corporate tax regime as a final tax from Tax Year (“TY”) 2026-27 onwards, and restructure the mechanism for carry-forward and utilisation of MAT credit accumulated as on 31st March, 2026 under Section 115JAA of the Income-tax Act, 1961 (“the repealed Act”).

In the above background, we have been requested to examine the following specific question:

“Whether a domestic company is required to mandatorily exercise the option under the concessional tax regime under Section 200(5) of the Act, which corresponds to erstwhile Section 115BAA of the repealed Act, in TY 2026-27 itself in order to preserve and utilise MAT credit accumulated as on 31st March, 2026 and whether a failure to exercise the said option in TY 2026-27 results in permanent lapse of such accumulated credit”.

Relevant Statutory Provisions

Prior Provisions – Clauses (m) to (p) of Section 206(1)

Prior to the Finance Act, 2026, the mechanism for accrual, carry-forward, and set-off of MAT credit for domestic companies was housed in Clauses (m), (n), (o) and (p) of Section 206(1) of the Clause (m) provided for credit of tax paid in excess of normal tax. Clause (n) governed the manner of allowing such credit and the treatment of excess foreign tax credit.

Clause (o) prescribed carry-forward of such credit for fifteen tax years and its set-off in years when normal tax exceeded MAT. Clause (p) addressed consequential adjustments arising from orders passed under the Act. The Finance Act, 2026 has omitted Clauses (m), (n), (o) and (p) of Section 206(1) in their entirety, with effect from 1st April, 2026.

The effect of such omission is two-fold. First, no fresh MAT credit accrues to any domestic company from TY 2026-27 onwards, as MAT paid under the old regime is now a final tax with no associated credit entitlement.

Second, and directly relevant to the present query, there is no surviving statutory mechanism within Section 206 for a company remaining in the old regime to utilise even its pre-existing accumulated credit. During any tax year in which a company continues in the old regime, the accumulated credit is effectively frozen and unavailable for set-

New Section 206(3) – Gateway Condition and Utilisation Mechanics

The Finance Act, 2026 has substituted a new sub-section (3) in Section 206 in place of the erstwhile carry-forward mechanism. Sub-section (3)(a) reads as under:

“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”.

Sub-section (3)(b) provides the mechanics of It states that where any amount of credit in respect of tax paid was allowed to be carried forward to the assessee under Section 115JAA of the repealed Act as on 31st March, 2026:

  • such credit shall be allowed to be set off in any tax year to the extent of 25% of the tax payable on total income computed under the other provisions of the Act for that tax year;
  • the remaining credit shall be carried forward to the subsequent tax year; and
  • such carry-forward or set-off shall not be allowed beyond the fifteenth tax year immediately succeeding the tax year in which the credit first became allowable under Section 115JAA of the repealed Act.

Section 536 – The Transition Savings Clause

 Section 536(2)(l) of the Act, the Repeal and Savings provision as substituted by the Finance Act, 2026, provides that any amount of credit in respect of tax paid, allowable to be carried forward under Section 115JAA of the repealed Act for the tax year beginning before 1st April, 2026:

  • shall be deemed to be the amount eligible for credit under corresponding provisions or section 206(3) or (4) of this Act, as the case may be in the case of said assessee; and
  • credit for the tax paid under the repealed Income-tax Act shall be allowed under this Act for the period for which it would have been allowed under the repealed Income-tax Act if the assessee otherwise continues to satisfy the conditions as specified in the corresponding provisions or section 206(3) or (4) of this Act, as the case may be in such tax years;

Section 536(2)(l) accordingly performs two functions. First, it expressly preserves the accumulated MAT credit as on 31st March, 2026, in that such credit is deemed eligible under Section 206(3) of the new Act and does not lapse by reason of the repeal of the Income-tax Act, 1961.

Second, it conditions the allowability of such credit upon the assessee satisfying the conditions of Section 206(3) in the relevant tax year, which by virtue of Section 206(3)(a) requires exercise of the option under Section 200(5).

It is pertinent to note that the provision does not specify that this option must be exercised by TY 2026-27, nor does it provide for lapse of accumulated credit on account of a delayed transition.

Whether Transition in TY 2026-27 is Mandatory – Analysis

Reading of Section 206(3)(a)

The moot question is whether the expression “for a tax year, beginning on or after the 1st April, 2026” in Section 206(3)(a) restricts the benefit to companies transitioning specifically in TY 2026-27, or whether it merely identifies TY 2026-27 as the earliest eligible year, leaving open the option of transitioning in any subsequent tax year.

On its plain and natural reading, the expression “on or after the 1st April, 2026” encompasses any tax year commencing from 1st April, 2026 onwards, including TY 2027-28, TY 2028-29 and beyond.

Had the Legislature intended to restrict the benefit to companies transitioning exclusively in TY 2026-27, it would have used the expression “for the tax year beginning on the 1st April, 2026” without the words “or after”. One may therefore infer that the provision contemplates exercise of the option in any tax year commencing on or after 1st April, 2026, without mandating transition in TY 2026-27

Section 536(2)(l) lends support to the above reading.

It provides that accumulated credit shall be available for the period for which it would have been allowed under the repealed Act, subject only to the condition that the assessee satisfies the requirements of Section 206(3) in such tax years.

The emphasis on “in such tax years” indicates that the condition operates on a year-by- year basis, that is, in any tax year in which the assessee exercises the option under Section 200(5), the credit becomes available for utilisation in that year. It does not provide for extinguishment of the credit merely because the option was not exercised in TY 2026-27.

CBDT FAQs – A Critical Reading FAQ Q.5(iii)

The CBDT has published FAQs on Budget 2026 addressing the amended MAT It is pertinent to note that these FAQs do not have the force of law and are not binding on either the assessee or the Revenue.

However, they constitute a persuasive indicator of the intent underlying the amendments. FAQ Q.5(iii) states: “the set off of credit of MAT will be allowed only to domestic companies who move to New tax regime from tax year 2026-27”.

Read in isolation, this sub-clause is susceptible to a narrow interpretation, namely, that only companies transitioning specifically in TY 2026-27 are entitled to utilise accumulated MAT credit.

FAQ Q.5(vi) and Q.12

However, FAQ 5(vi), forming part of the very same question and answer sequence as Q.5(iii), states: “The credit of MAT shall be allowable to those entities who are presently in old regime and shift from old to new regime for tax year 2026-27 or subsequent tax years”. Further, FAQ

Q.12 reiterates: “Only domestic companies moving to the New Tax regime for the tax year 2026- 27 and onwards will be allowed to use the existing MAT credit”. The expressions “or subsequent tax years” and “and onwards” are unambiguous and indicate that companies transitioning in TY 2027-28 or any later year also remain entitled to the benefit of accumulated credit.

It is trite to state that sub-clauses forming part of the same instrument cannot be read to contradict each other and must be construed harmoniously.

Applying this principle to the FAQ material, FAQ 5(iii) would fall to be read as using the phrase “from tax year 2026-27” to denote the earliest eligible year, that is, “from” in the sense of “starting from” or “beginning from,” and not as imposing a mandatory deadline of TY 2026-27. This harmonious reading is also consistent with the enacted text of Section 206(3)(a) and Section 536(2)(l), as analysed above.

The Fifteen-year Limitation – An Overriding Constraint

The above analysis notwithstanding, the fifteen-year limitation period embedded in Section 206(3)(b)(iii) operates as a separate and overriding constraint, independent of the question of regime.

This limitation runs from the tax year in which each tranche of credit first became allowable under Section 115JAA of the repealed Act, and not from the year of transition to the new regime, and there is no provision in the Act suspending this clock during years spent in the old regime.

Concluding Remarks

On a reading of Section 206(3)(a) and Section 536(2)(l) of the Act, and on a harmonious construction of FAQ Q.5(iii), Q.5(vi) and Q.12 issued by the CBDT, it appears that a domestic company is not mandatorily required to exercise the option under Section 200(5) in TY 2026- 27 itself in order to preserve accumulated MAT credit as on 31st March, 2026, and that transition in a subsequent tax year may, on the broader reading, preserve the right to utilise such credit at that time.

However, contrary views based on a narrow reading of FAQ Q.5(iii) may arise and cannot be entirely dismissed. In the absence of a binding CBDT Circular specifically resolving this interpretive question, a potential risk of litigation attaches to a strategy of deliberate deferral of transition.

Disclaimer: This note has been prepared for the purposes of internal reference and discussion and does not constitute a legal opinion. The views expressed herein are based on the provisions of the Act as on the date hereof and are tentative in nature, given the absence of judicial precedent on the newly enacted provisions and the interpretive divergence noted above.
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