Minimum Alternate Tax (MAT) Credit

What is MAT Credit?

The MAT Credit full form is Minimum Alternate Tax (MAT) Credit. As you already know, a company is liable to pay the taxes which are equal to the higher value of normal tax as calculated by the Income Tax Act and MAT as calculated by the book profit. In case MAT is higher than the normal tax, then the difference between their values is called MAT credit in income tax.

Example: For a company, the tax calculated according to the Income Tax Act is 8 lakhs, and the MAT calculated on the book profit is 8.4 lakhs. In this case, the MAT is higher than the normal tax liability, so the company has to pay MAT.

MAT credit = MAT - Normal Tax Liability

which is, = Rs 8.4 lakh - Rs 8 lakh

which is equal to, = Rs. 40,000

Mechanism for MAT Credit

There is a carry-forward mechanism for the MAT credit claims. Currently, this mechanism is in effect as per the income tax rules. Currently, you can only claim MAT credits in the assessment year when the normal tax liability is higher than the calculated MAT.

An important thing is that the maximum amount which you can claim cannot exceed the amount which is the difference between the normal tax and MAT liability of that year in which the credit is being availed.

Period for MAT Credit

MAT credit has a value similar to the extra tax paid in MAT as per the normal tax liability. It can be carried forward for a period of 15 assessment years, starting from the year MAT was generated for the first time.

One thing to keep in mind is that no interest is paid to the taxpayer on the MAT credit.