MAT & AMT — Quick Overview

MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax. MAT was introduced for companies to ensure a minimum tax outgo. Over time, a similar concept—AMT—was extended to specified non-corporate taxpayers.

Why was MAT introduced?

Some companies, despite earning substantial book profits and paying dividends, paid little or no tax by using available exemptions, deductions, and depreciation. MAT was introduced to bring such “zero-tax companies” into the tax net and ensure they pay a minimum level of tax on their book profits.

How MAT is calculated (Basic Provisions)

A company compares two amounts and pays the higher of the two:

  1. Normal tax liability computed under regular provisions of the Income-tax Act (i.e., tax on taxable income at the applicable rates).
  2. Tax on book profit computed at 15% of book profit plus applicable surcharge and cess. This is the MAT amount.

Note: For companies that are units of an International Financial Services Centre (IFSC) and earn income solely in convertible foreign exchange, MAT is levied at 9% of book profit plus applicable surcharge and cess.

MAT vs AMT — Scope, Sections, Rates & Applicability

Aspect MAT AMT
Scope Applies to companies when normal tax is lower than tax on book profits. Applies to specified non-corporate taxpayers (e.g., LLPs/others) claiming certain deductions, when normal tax is lower than tax on adjusted total income.
Section Section 115JB Section 115JC (with related provisions incl. 115JEE)
Rate 15% of book profit (plus surcharge & cess). IFSC unit: 9%. 18.5% of adjusted total income (plus surcharge & cess). IFSC unit: 9%.
Applicability All companies (public/private; Indian/foreign) unless exempt (e.g., life insurance business; shipping under tonnage tax). Specific carve-outs for certain foreign companies. Non-corporate taxpayers to whom AMT provisions apply (thresholds/conditions as per Act).
Base of computation Book profit as per 115JB rules. Adjusted total income as per 115JC rules.

Applicability & Non-Applicability of MAT

Section 115JB provides that every company is liable to pay MAT if the tax payable under normal provisions (including surcharge and cess) is less than 15% of its book profit (plus applicable surcharge and cess).

MAT generally applies to all companies—public or private, Indian or foreign—except where specifically excluded. Key exclusions include:

  • Income from the life insurance business referred to in Section 115B (per Section 115JB(5A)).
  • Shipping income under the tonnage tax regime (per Section 115V-O).

Foreign company carve-outs (Explanation 4 to Section 115JB): MAT shall not apply—and shall be deemed never to have applied—if the assessee is a foreign company and:

    1. Is a resident of a country/territory with which India has a tax treaty (Section 90/90A) and does not have a Permanent Establishment (PE) in India as per that treaty; or
    2. Is a resident of a non-treaty country and is not required to seek registration under Indian company law.

How MAT Works — Quick Flow

  1. Compute Normal Tax under regular provisions.
  2. Compute Tax on Book Profit = 15% of book profit (+ surcharge & cess) (9% for IFSC units).
  3. Compare both → pay the higher amount as tax liability.

Normal Tax (regular provisions)
              \
               \__ Compare  →  Higher of the two  →  Final Tax Liability
               / 
Tax on Book Profit (MAT @ 15% / 9% IFSC)

Real-Life Examples

IT company with high book profits, low taxable income

An IT company declares book profit of ₹10 crore but, due to incentives and deductions, its taxable income is minimal. Normal tax works out to ₹20 lakh.

MAT @ 15% of book profit = ₹1.5 crore (+ surcharge & cess). Since MAT > normal tax, the company pays MAT.

IFSC unit receiving income in convertible foreign exchange

A company unit located in an IFSC earns all income in convertible foreign exchange. MAT rate is 9% of book profit (plus surcharge & cess).

MAT & AMT — FAQs

What is MAT under Section 115JB?
MAT is a minimum tax companies must pay if their normal tax is lower than tax computed on book profits at 15% (9% for IFSC units), plus surcharge and cess.
Who is liable to pay AMT?
Specified non-corporate taxpayers (e.g., LLPs/others claiming certain deductions). AMT applies when tax on adjusted total income @ 18.5% exceeds normal tax; thresholds/conditions apply.
Is MAT applicable to foreign companies?
Generally yes; however, specific carve-outs exist (e.g., no PE in India under treaty, life insurance business, shipping under tonnage tax). See Explanation 4 to 115JB and s.115JB(5A).
What is the MAT rate in India?
15% of book profit (plus surcharge & cess). For IFSC units earning solely in convertible foreign exchange, 9% applies.

Need help?

If you’d like us to review your company’s MAT exposure or compute book-profit adjustments, our team can assist end-to-end—calculation, documentation, and compliance.

Return to Articles Page