About: Minimum Alternative Tax (MAT)

Minimum Alternative Tax is payable under the Income Tax Act.

The concept of MAT was introduced to bring into the tax net "zero tax companies" which in spite of having earned substantial book profits and having paid handsome dividends, do not pay any tax due to various tax concessions and incentives provided under the Income-tax Law.

MAT is the minimum tax to be paid by companies that keep their taxable profit low by using tax breaks.

Note: MAT is equal to 18.5% (15% from AY 2020-21) of Book profits (Plus Surcharge and cess as applicable).

Book profit means the net profit as shown in the profit & loss account for the year.

About: MAT Credit

MAT operates on "MAT credit” carry forward mechanism.

MAT credit allows a company to carry forward the “excess” tax it pays because of MAT (as against its regular tax liability) in a particular year, to be utilised in a future year as a credit against its regular tax liability.

For example: ABC Ltd has the taxable income as per normal provisions of the income tax Act Rs 40 lakhs and Book profits of Rs 75 lakhs for the FY 2019-20. Tax payable will be higher of the following two:

Rs 40, 00,000 @ 30 % plus 4% = 12,48, 000

Tax liability as per MAT provisions will be :

Rs 75, 00,000 @ 18.5 % plus 4% = Rs 14,43,000

Hence Tax payable by the company will be Rs 14,43,000.

MAT CREDIT: Rs 14,43,000 – Rs 12, 48,000 = Rs 1,95,000