Minimum alternate tax

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5. What is meant by Minimum alternate tax?

Minimum Alternate Tax (MAT) is a provision in the Income Tax Act that forces profitable companies to pay a minimum amount of tax. It stops large businesses from reporting high profits to shareholders while using tax breaks to pay zero taxes. [1, 2, 3]




How It Works

A company must pay the higher of two amounts:
  1. The tax calculated under normal rules.
  2. The MAT, which is 15% of the company's "book profit" (plus applicable surcharges and cess). [1]
Think of book profit as the net profit shown on the company's balance sheet, rather than the final taxable income. [2, 5, 6]

Why It Exists (Simple Example)

Imagine you own a bakery. You make Rs. 100 in profit. You use government tax deductions to lower your taxable income to Rs. 0. Without MAT, you pay no tax. With MAT, the government requires you to pay 15% of your Rs. 100 profit (Rs. 15), regardless of your deductions. [1]

MAT Credit

If you pay Rs. 15 under MAT, but your normal tax would have been Rs. 10, you have paid Rs. 5 in extra tax. The government allows you to save this extra Rs. 5 as a "MAT Credit". You can use this credit to lower your tax bills in future years when your normal tax is higher than the MAT. [1, 7]

You can learn more about how to calculate your company's MAT liability using the ClearTax MAT Guide. [4]




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