MAT stands for Minimum Alternate Tax and was introduced in 1988 to tax large corporate groups that were paying zero income tax despite making profits. MAT is currently levied at a rate of 18.5% and applies to companies that are profitable according to their books but pay no tax under normal tax provisions. Companies can claim MAT credit for any MAT paid above the tax amount calculated under normal provisions, which can be used to offset future tax payments not covered by MAT.

1. Minimum Alternate Tax
Basics about MAT

2. MAT: History
MAT was introduced for the first time in the Accounting Year 1988-89. It was felt
that due to various concession provided in Tax Laws big corporate groups
become zero tax companies.

3. Relevant Sections
 In order to bring such companies under the income tax act net, section
115JA was introduced w.e.f assessment year 1997-98. The current rate for
MAT is 18.5%, up from 7.5% in 2001-2002. Since this is a very broad provision,
sometime companies who genuinely deserve tax relief get stuck with MAT
liability. Hence, a system of MAT credit entitlement was brought in.

4. Which companies have to pay MAT?
 Provision of MAT has been introduced for the companies popularly known
as the 'Zero Tax Companies'. These are the companies, which are showing
book profits and declaring dividends to the shareholders, but are not
paying any income tax. E.g. are Steel and generally construction
companies (usually capital incentive companies).

5. When are provisions of Mat not
applicable?
Provision of MAT is not applicable to:-
 Income from the business of developing, maintaining, and operating
certain infrastructure facilities.
 Income from units in specified zones or specified backward districts.
 Income of certain loss-making companies.
 Export profits.

6. MAT credit system
 Under this system, if a company pays Minimum Alternate Tax, then the
difference between the tax that would have been payable if there was no
MAT and the actual tax paid under MAT regime can be carried forward as
a credit and can be set off against any tax in the future that is not under
the MAT regime.
 For example, if a company has a book profit of 10 lakhs and after applying
the provisions of Income tax act, arrives at a taxable income of only Rs.1
lakh, then MAT becomes applicable as 18.5% of 10 lakhs is 1.85 lakhs.
However, the difference between the tax paid on 1.85 lakhs and the tax
calculation on 1 lakh is carried forward as MAT credit.