MAT impact and analysis in Budget 2026 In the Budget 2026–2027 and the proposed Income Tax Act, 2025, the provisions regarding Minimum Alternate Tax (
MAT impact and analysis in Budget 2026
In the Budget 2026–2027 and the proposed Income Tax Act, 2025, the provisions regarding Minimum Alternate Tax (MAT) undergo a significant structural shift. These changes are designed to encourage corporate migration to the new tax regime and simplify long-term tax administration.
Provisions Related to MAT
- Rate Reduction and Final Tax Status: Starting 1 April 2026, the MAT rate is reduced from 15% to 14%. Crucially, MAT is proposed to become a final tax, meaning there will be no further accumulation of MAT credit for taxes paid from this date onwards.
- Treatment of Accumulated Credit: For companies with brought-forward MAT credit (accumulated until 31 March 2026), the following rules apply:
- Mandatory Migration: Set-off of these credits is only permitted for domestic companies that shift to the new tax regime.
- Utilisation Cap: The set-off using available credit is limited to 1/4th (25%) of the tax liability in the new regime.
- Expiry Period: Credits will remain available for set-off for up to fifteen years from the year they were first available.
- Specific Provisions for Foreign Companies: In the case of foreign companies, set-off is allowed to the extent of the difference between the normal tax on total income and the MAT, specifically for tax years where the normal tax exceeds the MAT.
- Exemptions: The Budget proposes a complete exemption from MAT for all non-residents who pay tax on a presumptive basis.
MAT Impact Analysis
The proposed changes have several strategic implications for corporate taxpayers and the broader fiscal landscape:
1. Incentivising the New Tax Regime. The most significant impact is the "nudge" for domestic companies to abandon the old tax regime. By making the use of existing MAT credits conditional upon migrating to the new regime, the government is effectively penalising companies that stay in the old system by potentially stranding their accumulated credits.
2. Administrative Simplification and Certainty Transitioning MAT to a "final tax" removes the administrative burden of tracking credit carry-forwards indefinitely. Once the 15-year window for existing credits closes, the dual-track tax computation (Normal Tax vs. MAT Credit) will be eliminated, aligning with the goal of simplified tax compliance.
3. Cash Flow and Tax Planning. While the lower 14% rate provides immediate relief, the 25% cap on credit utilisation means companies cannot use their entire accumulated credit to wipe out their tax liability in a single year. This ensures a steady tax inflow for the government while providing a predictable, though throttled, path for companies to exhaust their credits.
4. Boosting Foreign Investment The exemption for non-residents under presumptive taxation removes a major compliance barrier for global businesses. This is intended to make the Indian tax environment more certain and attractive for global business and investment, particularly for those not maintaining a permanent establishment in India.
5. Rationalising the Corporate Tax Landscape. These reforms are a continuation of the 2019 corporate tax overhaul. By removing the "credit accumulation" feature, the government is moving away from a system of deferred tax recovery and toward a simplified, low-rate regime where the tax paid in a year is final.
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