How to Compute and Pay Minimum Alternate Tax (MAT) Under Section 115JB of the Income Tax Act in India

Kaustav Chowdhury
Aug 13
9 min read

The Minimum Alternate Tax (MAT) regime was introduced to ensure that companies reporting substantial book profits and paying dividends to shareholders do not escape their tax obligations entirely through the use of exemptions, deductions, and incentives available under the Income Tax Act. Under Section 115JB (now Section 206 of the Income Tax Act, 2025, effective from April 1, 2026), if the income tax payable by a company on its total income as computed under the normal provisions of the Act is less than 15% of its book profit, the book profit is deemed to be the total income and tax is payable at the MAT rate.

This guide provides a detailed, step-by-step methodology for computing book profit under Section 115JB, identifying the applicable additions and deductions, calculating the MAT liability, claiming MAT credit under Section 115JAA, and fulfilling the Form 29B certification and filing requirements.

1. Applicability of MAT Under Section 115JB

MAT applies to all companies, whether domestic or foreign, that are assessed to income tax in India. However, the following categories of companies are exempt from MAT.

Companies that have opted for the concessional tax regime under Section 115BAA (22% tax rate) or Section 115BAB (15% tax rate for new manufacturing companies), as these sections explicitly exclude the applicability of Section 115JB.
Companies in the International Financial Services Centre (IFSC) that have opted for the special tax regime under Section 115BAA, provided they derive income solely in convertible foreign exchange.
Foreign companies that do not have a permanent establishment (PE) in India, as ruled by the Supreme Court in Castleton Investment Ltd. (2012).

For all other companies, the MAT computation must be carried out as part of the annual tax compliance process.

2. Step-by-Step Book Profit Computation

The computation of book profit begins with the net profit as shown in the statement of profit and loss prepared in accordance with Schedule III to the Companies Act, 2013. The company must use the same accounting policies, accounting standards, and depreciation rates that were adopted for preparing the accounts laid before the Annual General Meeting under Section 129 of the Companies Act. The board meeting approving the financial statements must ensure these standards are consistently applied.

Step 1: Start with Net Profit

Take the net profit as shown in the statement of profit and loss for the relevant previous year (now "tax year" under the Income Tax Act, 2025). This is the starting point for the book profit computation under Explanation 1 to Section 115JB(2).

Step 2: Add Back Specified Items (Clause (a) to (j) of Explanation 1)

The net profit must be increased by the following items if they have been debited to the profit and loss account.

Income tax paid or payable, and the provision made for income tax (including deferred tax provision, if debited to P&L).
Amounts carried to any reserve, by whatever name called (other than reserves specified under Section 33AC).
Provisions for unascertained liabilities (amounts set aside to meet liabilities that have not yet crystallised).
Provisions for diminution in the value of any asset (write-downs of asset values).
Amounts debited as dividend paid or proposed.
Expenditure relatable to income exempt under Sections 10, 11, and 12 (to the extent not disallowed under Section 14A).
Deferred tax debited to the profit and loss account (if not already added back under clause (a)).
Amounts of depreciation debited to the profit and loss account (excluding depreciation computed in accordance with Section 350 of the Companies Act, 1956, or Schedule II to the Companies Act, 2013, as applicable).

Step 3: Deduct Specified Items

The net profit (after additions) must be decreased by the following items.

Amounts withdrawn from any reserve or provision if credited to the profit and loss account (provided the amounts were added back in an earlier year).
Income exempt under Section 10 (other than income exempt under Section 10(38), which has since been superseded by Section 10(35A)).
Amounts of depreciation debited to the profit and loss account, excluding depreciation computed under Schedule II to the Companies Act, 2013 (the lower of book depreciation or Companies Act depreciation is allowed).
Profits of sick industrial companies for the assessment year in which the net worth becomes equal to or exceeds the accumulated losses.
Deferred tax credited to the profit and loss account.
Share of profit from association of persons or body of individuals on which no income tax is payable.

Step 4: Arrive at the Book Profit

The resulting figure, after all prescribed additions and deductions, is the "book profit" for the purpose of Section 115JB. If the book profit is a loss, MAT is not payable for that year, but the loss cannot be carried forward for set-off under the MAT provisions (unlike brought-forward business losses under normal provisions).

3. MAT Rate and Computation of Tax Liability

The MAT rate is 15% of book profit, effective from Assessment Year 2020-21 onwards (reduced from the earlier rate of 18.5% by the Taxation Laws (Amendment) Act, 2019). In addition to the base rate, the following components apply.

Surcharge: 7% if book profit exceeds Rs. 1 crore but does not exceed Rs. 10 crore; 12% if book profit exceeds Rs. 10 crore.
Health and Education Cess: 4% on the aggregate of MAT and surcharge.

The effective MAT rate, inclusive of surcharge and cess, ranges from approximately 15.60% to 17.47%, depending on the level of book profit. The company must compare this MAT liability with the tax liability computed under the normal provisions of the Act. The higher of the two amounts is the tax payable for the year.

4. MAT Credit Under Section 115JAA

When a company pays MAT in a given year (because its MAT liability exceeds its normal tax liability), it is entitled to a MAT credit under Section 115JAA. The MAT credit is computed as the difference between the MAT paid and the tax that would have been payable under the normal provisions for that year.

Carry Forward Period

The MAT credit can be carried forward for a period of 15 assessment years (now 15 tax years under the Income Tax Act, 2025), as amended by the Finance Act, 2017. Previously, the carry-forward period was limited to 10 years. The extended period applies to MAT credit arising in assessment years commencing on or after April 1, 2018.

Set-Off Mechanism

The MAT credit can be set off in subsequent years when the company's tax liability under the normal provisions exceeds its MAT liability. The set-off is limited to the difference between the normal tax and the MAT for the relevant year. Key points to note include the following.

No interest is payable on the carried-forward MAT credit.
The credit cannot be refunded; it can only be adjusted against future tax liabilities.
If a company converts from a private or unlisted company to a Limited Liability Partnership (LLP), the MAT credit lapses and cannot be carried forward by the LLP.
In a scheme of arrangement or merger, the MAT credit of the transferor company can be carried forward by the transferee company, subject to conditions under Section 115JAA read with Section 72A.

5. Form 29B: CA Certification and Filing

Every company to which Section 115JB applies must obtain a report from a Chartered Accountant (CA) in Form 29B, certifying that the book profit has been computed correctly in accordance with the provisions of Section 115JB. Under the Income Tax Act, 2025, Form 29B has been renumbered as Form 66, with the corresponding MAT provisions incorporated under Section 206.

Contents of Form 29B

The Form 29B report includes the following components.

A computation of book profit showing the net profit per the profit and loss account, each prescribed addition, each prescribed deduction, and the resulting book profit.
Confirmation that the profit and loss account has been prepared in accordance with Parts II and III of Schedule III to the Companies Act, 2013 (or the applicable accounting standards for foreign companies).
Details of accounting policies adopted and any changes in accounting policies from the previous year.
Details of any amounts credited or debited to the profit and loss account that relate to prior periods.

Filing Requirements

Form 29B must be signed by a practicing Chartered Accountant registered with the Institute of Chartered Accountants of India (ICAI). The form must be filed electronically on the Income Tax Department's e-filing portal (incometax.gov.in) with a valid Digital Signature Certificate (DSC). The form must be filed on or before the due date for filing the income tax return (typically September 30 for companies requiring audit, or October 31 for companies required to furnish a transfer pricing report under Section 92E). Non-filing or delayed filing of Form 29B can attract penalties under the adjudication framework and Section 271BA. Companies should ensure their vigil mechanism and whistleblower policy under Section 177(9) of the Companies Act enables reporting of any irregularities in the MAT computation or tax filing process.

6. Ind AS Compliant Companies: Special Considerations

Companies that prepare their financial statements under Indian Accounting Standards (Ind AS) must follow the CBDT's Circular No. 24/2017, which provides specific clarifications on the computation of book profit for MAT purposes. Key adjustments for Ind AS companies include the treatment of Other Comprehensive Income (OCI) items, the impact of fair value adjustments on financial instruments, the treatment of expected credit loss provisions under Ind AS 109, and the effect of revenue recognition under Ind AS 115.

For Ind AS companies, additional adjustments are required to reconcile the net profit per the Ind AS financial statements with the book profit under Section 115JB. These adjustments are specified in Section 115JB(2A) and the related provisions, which were introduced to address differences between Ind AS and the earlier Indian GAAP.

7. Transition to the Income Tax Act, 2025

The Income Tax Act, 2025 came into effect on April 1, 2026, replacing the Income Tax Act, 1961. The MAT provisions of Section 115JB have been consolidated into Section 206 of the new Act, with several structural changes.

The "assessment year" concept has been replaced by "tax year" terminology, applicable prospectively from FY 2026-27.
MAT and Alternate Minimum Tax (AMT) provisions have been separated into distinct sub-sections for clarity.
The MAT rate remains at 15% of book profit for Tax Year 2026-27.
Form 29B has been renumbered as Form 66, and the CBDT has notified the Income Tax Rules, 2025 with updated procedural requirements.
MAT credit accrued under the old Act will continue to be available for set-off under the transition provisions of the new Act.

Companies should work with their tax advisors to ensure a smooth transition, particularly regarding the mapping of old section references to the new Act, the treatment of brought-forward MAT credit, and compliance with the updated filing requirements under the Income Tax Rules, 2025.

8. Common Pitfalls and Best Practices

Companies frequently encounter the following issues in MAT compliance.

Incorrect Treatment of Deferred Tax: The interplay between deferred tax provisions and MAT book profit computation is a frequent source of errors. Companies must carefully distinguish between deferred tax debited to OCI (which is excluded from book profit computation) and deferred tax debited to the profit and loss account (which must be added back).
Failure to Claim MAT Credit: Companies sometimes fail to maintain proper records of MAT credit entitlement, resulting in the credit lapsing after the 15-year carry-forward period. Maintain a detailed MAT credit register showing the year-wise credit generated, set-offs claimed, and balances remaining.
Non-Compliance with Schedule III: The profit and loss account must be prepared strictly in accordance with Schedule III to the Companies Act, 2013. Any deviation can result in the assessing officer recomputing the book profit, potentially increasing the MAT liability.
GST and Indirect Tax Implications: Companies should ensure that GST compliance and input tax credit claims are properly reflected in the financial statements, as errors in indirect tax accounting can distort the net profit figure used as the starting point for MAT computation.
Advance Tax on MAT: Companies subject to MAT must include the MAT liability in their advance tax calculations. Failure to pay adequate advance tax (including the MAT component) can attract interest under Sections 234B and 234C. Additionally, companies that have created charges on assets under Section 77 of the Companies Act must ensure these financial obligations are properly reflected in the book profit computation.

Proper director oversight and governance mechanisms, including the audit committee's review of the MAT computation, are essential to avoid these pitfalls.

9. MAT in the Context of M&A and Restructuring

MAT has important implications in M&A and corporate restructuring transactions. In a slump sale transaction, the capital gains arising from the transfer of the undertaking as a going concern may be subject to MAT if the company's normal tax on such gains falls below the MAT threshold. In mergers and amalgamations, the accumulated MAT credit of the amalgamating company can be carried forward by the amalgamated company under Section 115JAA, read with Section 72A, subject to the prescribed conditions being met.

Companies contemplating ESOP programmes should also consider the MAT implications of ESOP expenses. The ESOP cost charged to the profit and loss account (measured at fair value under Ind AS 102 or Guidance Note on Share-Based Payments under Indian GAAP) is a deductible expense for book profit computation, potentially reducing the MAT liability.

Conclusion

MAT compliance requires a disciplined, step-by-step approach to book profit computation, careful application of the prescribed additions and deductions, timely CA certification through Form 29B (now Form 66 under the IT Act, 2025), and systematic tracking of MAT credit for carry-forward and set-off purposes. With the transition to the Income Tax Act, 2025, companies must also adapt to the revised section numbering, updated filing forms, and the new "tax year" framework. By integrating MAT planning into their broader tax strategy, companies can ensure compliance while optimising their effective tax rate over the medium term.