Slow Fade Of MAT: Why India Is Pushing Companies Into New Tax Regime

Last updated: February 2, 2026 6:42 am

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Anand Kumar is a Senior Journalist at Global India Broadcast News, covering national affairs, education, and digital media. He focuses on fact-based reporting and in-depth analysis...

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Minimum Alternative Tax (MAT) is a backstop corporate tax under Indian law that requires a company to pay at least 15% of its book profits less its normal income tax liability. MAT was introduced to bring so-called zero-tax companies with substantial book profits but little or no taxable income, often due to tax incentives or exemptions, into the tax net. Subject to limits, any MAT in excess of normal tax in a year may be paid as MAT credit to set off regular income tax liability in subsequent years.

Slow fade of MAT: Why India is pushing companies into new tax regimeIn 2019, the Indian government reformed corporate tax by allowing domestic companies to opt for a new regime. Under this regime, a discount rate of 22% is applicable if a company gives up certain incentives and holidays and such companies are exempted from MAT. Under the old regime, domestic companies continued to be taxed at 25 or 30% (depending on turnover in previous years). These companies could still claim incentives and holidays, but they were subject to MAT.

Many Indian companies with accumulated MAT credit have elected to remain in the old regime so that they can set off that credit against tax payable under the regular provisions in subsequent years. Thus, several companies used MAT credit to keep their effective tax rate close to 15%.

To encourage migration to the new regime, the Finance Bill 2026 proposes to amend the MAT rules. While the MAT on book profits is proposed to be reduced from 15 to 14%, the original limit will be imposed on the utilization of MAT credit.

For companies under the old regime, all MAT credits previously accrued will lapse. They can claim their accrued MAT credit benefit only if they adopt the new regime in the tax year 2026-2027. Even then, MAT credit can only be used to set off up to 25% of tax payable under regular provisions.

Further, no MAT credit will be available for MAT paid by companies from tax year 2026-2027. In other words, going forward, MAT will act as a final tax liability.

These proposed changes are likely to include MAT credit for Indian companies opting into the new regime.

Foreign companies that have a permanent establishment (ie a branch office) in India are also subject to MAT As foreign companies are taxed at 35% and cannot opt for the concessional corporate rate, accumulated MAT credits relating to tax years prior to 2026-2027 will be available to set off against future ordinary income tax liability. However, any MAT paid for tax years subsequent to 2026-2027 will be a final tax liability. This will also affect branch offices of foreign companies in GIFT City, where MAT paid at the rate of 9% of book profits will now be a final tax.