Glossary · Income Tax
MAT
An alternative minimum charge on companies when their regular income-tax liability falls below a specified share of adjusted book profit.
Minimum Alternate Tax (MAT) ensures that companies which report healthy book profits but pay little or no income tax still contribute. If tax computed on normal taxable income is lower than the MAT rate applied to “book profit”, the company pays the higher MAT amount and records a MAT credit for the excess, which can be set off in later years. Applicable rate, the definition of book profit and the credit rules are laid down in the Income Tax Act, with carve-outs for certain entities and regimes.
Examples
A company whose regular tax is reduced by exemptions may still have to pay MAT on book profit and carry the difference forward as MAT credit.