What is Minimum Alternate Tax (MAT)?

• In the Union Budget 2025-26, Finance Minister Nirmala Sitharaman proposed to exempt Minimum Alternate Tax (MAT) for non-residents who pay tax on presumptive basis.

What is Minimum Alternate Tax?

• Minimum Alternate Tax (MAT) was introduced to facilitate the taxation of ‘zero tax companies’. 

• It had been observed that many companies, despite showing high profits in their books of accounts and paying substantial dividends, were paying marginal or no tax, by taking advantage of various tax concessions and other incentives, in a manner so as to avoid paying tax. 

• MAT was thus envisaged as levying a minimum tax on such companies by deeming a certain percentage of their book profits, computed under the Companies Act, as taxable income.

• The provisions of MAT are applicable to a corporate taxpayer only.

• Since the introduction of MAT, several changes have been introduced in the provisions of MAT and today it is levied on companies as per the provisions of section 115JB.

History of MAT

• The United States of America was the first to introduce such a tax as an ‘Alternate Minimum Tax’ through the Tax Reforms Act of 1969 to tax high-income individuals who used tax preferences (exemptions, charities and foreign tax credits) to reduce or eliminate their liability under regular income tax.

• MAT was first introduced in India vide Section 80VVA of the IT Act through the Finance Act of 1983.

• Section 80VVA was omitted by the Finance Act, 1987 (from the assessment year 1988-89), which instead introduced section 115J in a modified form.

• This provision was introduced to address the practices followed by certain companies to avoid the payment of income tax, even though they had the “ability to pay”. These companies, which were otherwise making substantial profits and declaring high dividends, were taking advantage of various tax concessions and other incentives in a manner as to avoid paying tax.

• In 1990, the government rationalised the tax structure, and widened the taxable income base. As a result, it was felt that there was no longer any need for section 115J to remain, and it was made inoperative from assessment year 1991-92.

• The principle of levying tax on zero-tax companies was reintroduced in the form of section 115JA in 1996.

• The Finance Act of 2000, made Section 115JA inoperative with effect from April 1, 2001 and inserted a new provision, Section 115JB, in its place.