In Budget 2026, the government made a minor change to the MAT (Minimum Alternate Tax). This rule applies when a company earns money but pays very little tax. In such cases, tax is calculated on the company’s book profit instead. If this tax is less than 15 percent, MAT applies. Earlier, companies believed the extra tax paid under MAT could be used later without any issue. From AY 2026-27, this thinking needs to change. The extra tax paid till now is not lost.
What changed in MAT from AY 2026-27?
From AY 2026-27, any tax paid under MAT in the old tax regime will be treated as final tax. This means no new MAT credit will be allowed going forward. At the same time, the government has reduced the MAT rate from 15% to 14% of book profit. So, companies pay slightly lower MAT, but they cannot carry forward MAT credit anymore.
What happens to old MAT credit?
The MAT credit accumulated up to 31 March 2026 is not lost, but the way it can be used has changed. For domestic companies, this old MAT credit can be set off only if the company opts for the new tax regime. Even then, the set-off is restricted to 25% of the total tax liability of that year. So, full adjustment in one year is not allowed. The benefit will be spread out and limited.
What about MAT Credit in case of Foreign Companies?
For foreign companies, the rule works a little differently. MAT credit can be used only when the normal tax payable is higher than the MAT for that year. Even then, it can be adjusted only to that limited extent. This shows that the government wants to slowly reduce the importance of MAT and encourage companies to move to the new tax system. Because of this, companies with large MAT credits should carefully review their tax plans before choosing between the old and new tax regimes.
Conclusion
MAT rate is reduced to 14%, but MAT credit is no longer created from AY 2026-27. Old MAT credit is still usable, but with limits, 25% cap for domestic companies under the new regime and restricted set-off for foreign companies. For finance professionals, this is not just a technical update. It is a strategic tax decision point that needs careful review before finalising the tax regime choice for future years. To get more tax updates like this, follow Finprov Learning.
