Minimum Alternate Tax (MAT) – Definition, Calculation & Liable Companies

What is Minimum Alternate Tax?

Minimum Alternate Tax (MAT) is a provision made by the direct tax laws to put a limit on tax exemptions availed by individuals or companies, so that the government does not have to suffer and they compulsory pay at least a minimum amount of tax. The companies should at least pay the corporate tax, which is equal to the higher of the following:

• Normal Tax Liability: It is calculated according to the normal provisions of the Income Tax Act. That means they are computed at the relevant tax rates on the taxable income of the company.
• Minimum Alternate Tax (MAT): The payable tax is computed at 15% plus all the applicable surcharge and cess.

The difference between the normal tax liability and MAT is called the Minimum Alternate Tax (MAT) Credit.

How to Calculate MAT?

The Minimum Alternate Tax is calculated as 15% of the book profit of the tax assesse.

MAT provisions example for better understanding:

The Taxable income of a company is 10 lakhs (not availing any exemptions). So, if we talk about the normal tax liability of this company, then it is 22% of taxable income, which is 2.2 lakhs plus cess and surcharges.

The book profit of this company is 20 lakhs, and MAT is 15% of the book profit, which is 3 lakhs plus cess and surcharge.

As we know, the MAT is higher than the normal tax liability, so the company is liable to pay 3 lakhs plus surcharges and cess to the government.

Companies that are liable to pay MAT

All the companies, whether they are public or private and indian or foreign, are liable to pay MAT and come under the Minimum Alternate Tax applicability. The condition is that the income tax payable to the government under the Income Tax Act should be less than 15% of the book profit plus cess and surcharges of the company.