MAT Overhaul from FY 2026–27: How New Rules Push Companies into the New Tax Regime
- Mayur Bhadani
- Feb 11
- 6 min read
Introduction – Why this matters ?
Minimum Alternate Tax (MAT) was introduced to tax “zero-tax companies” that reported good profits in books but paid little or no income tax due to exemptions and incentives.
With the Finance Bill, 2026, MAT itself has been re-engineered. The Government now wants most companies to move to the simpler, concessional corporate tax regime (like 22%/15% rates without exemptions).
To support this shift, the MAT rules are being overhauled so that:
MAT becomes a lower, final tax under the old regime, and
Existing MAT credits get limited, time-bound usage – mainly when you move to the new regime.
For promoters, CFOs and professionals, this is a strategic tax planning decision, not just a compliance tweak.
1. Quick recap – What is MAT?
Under the existing (till FY 2025–26) framework:
MAT applies to companies (domestic and foreign, with certain exclusions).
It is levied on book profit (as per Companies Act accounts, with specified additions and deductions).
Rate: 15% of book profit + surcharge + cess (for most companies).
If tax payable under normal provisions is less than MAT, company must pay MAT.
MAT Credit: The extra tax paid because of MAT (over normal tax) can be carried forward for 15 years and set off when normal tax exceeds MAT in future years.
Companies opting for concessional tax regime (like section 115BAA / 115BAB under the old 1961 Act) are not subject to MAT.
2. What does the Finance Bill, 2026 change in MAT?
The Finance Bill, 2026 (Income-tax Act, 2025) proposes a rationalisation of MAT:
MAT remains applicable only for the “old” corporate tax regime
Companies that continue with the old regime (higher headline rates with deductions & incentives) will still have MAT.
Companies in the new concessional regime continue to be outside MAT; they only need to manage remaining MAT credit as per new rules.
MAT rate reduced from 15% to 14% of book profit
For corporates in the old regime (other than specified IFSC units), the MAT rate becomes 14% instead of 15%, plus applicable surcharge and cess.
MAT in the old regime becomes a “final tax” – no new MAT credit
Tax paid as MAT for years from 1 April 2026 onwards in the old regime will be treated as final tax.
No new MAT credit will be generated on MAT paid for these years.
Existing MAT credit – restricted set-off, mainly in new regime
Existing MAT credit (built up till FY 2025–26) does not vanish, but:
For domestic companies:
Set-off of MAT credit will be allowed only when they are in the new tax regime, and
Even then, only up to 25% of the tax liability of that year.
For foreign companies: set-off allowed up to the difference between normal tax and MAT in a year where normal tax is higher than MAT.
Special relief – certain non-residents under presumptive taxation kept out of MAT
Income of specified non-residents taxed on presumptive basis is proposed to be excluded from MAT.
Effective date
Changes apply from 1 April 2026 and are relevant for tax year 2026–27 and onwards.
3. Who is impacted?
Most impacted:
Domestic companies still in the old regime with:
Significant book profits,
Lower normal tax due to deductions / incentives,
Large MAT credits accumulated.
Less impacted / indirectly impacted:
Domestic companies already in the new concessional regime – MAT does not apply, but they may hold opening MAT credits from past years and now need to plan utilisation (subject to 25% cap).
Positively impacted:
Certain non-resident taxpayers under presumptive schemes – MAT exemption removes an extra tax layer.
4. How will MAT work in practice after the overhaul?
Let’s understand with simple numbers. (Figures ignore surcharge/cess for simplicity.)
Example 1 – Company stays in old regime in FY 2026–27
Book profit (as per accounts): ₹10 crore
MAT @ 14% = ₹1.40 crore
Normal tax (after deductions) = ₹0.80 crore
Result:
Company must pay ₹1.40 crore (MAT).
No MAT credit will be created for this extra tax of ₹0.60 crore.
This 14% MAT is effectively final tax in the old regime.
Implication: Staying in old regime becomes less attractive because extra MAT cannot be “recovered” later.
Example 2 – Company moves to new regime with MAT credit
Assume:
Opening MAT credit on 1 April 2026 = ₹3 crore (built up till FY 2025–26).
Company opts for new concessional regime from FY 2026–27.
Tax as per new regime (normal tax) for FY 2026–27 = ₹1 crore.
Under new rules:
MAT credit can be set off only up to 25% of the tax liability in a year.
25% of ₹1 crore = ₹25 lakh.
So for FY 2026–27:
Tax payable in cash = ₹1 crore – ₹25 lakh = ₹75 lakh.
Remaining MAT credit = ₹3 crore – ₹25 lakh = ₹2.75 crore (carry forward as per overall time limit – precise transitional rules will be in the Act/Rules).
Implication:
Companies will not be able to wipe out tax liability quickly using MAT credit.
Migration to new regime gives some relief but in a gradual, capped manner.
5. Common mistakes & practical issues you should watch for
Assuming MAT credit will keep accumulating as before
Post 1 April 2026, any MAT paid in old regime is final, with no credit.
Not revisiting financial projections
Many companies planned capex and incentives assuming 15-year MAT credit usage. That model no longer holds in the same way.
Ignoring the 25% cap when modelling cash flows
Even if you have big MAT credit, your annual usage is restricted to 25% of tax liability in new regime (for domestic companies).
Delaying decision on moving to new regime
Each year you remain in old regime after 1 April 2026, you risk:
Paying MAT @14% as final tax, and
Not generating any additional credit.
Not aligning MAT decisions with dividend policy & accounting
Write-down of MAT credit in books (if not fully usable) can impact net worth and EPS, affecting lender covenants and dividend decisions.
6. Penalties, interest & consequences
Interest:
MAT is part of your income-tax liability. Shortfall in advance tax or self-assessment tax due to wrong MAT estimation can trigger interest under standard interest provisions (e.g., 234B / 234C-type interest in the earlier Act – equivalent sections in new Act 2025).
Penalties:
Under-reporting / mis-reporting of income, mis-computation of book profit, or misclassification of regime may attract penalties and prosecution under general penalty chapters of the new Act.
Financial reporting impact:
Ind AS / AS requirements: MAT credit assets will now need to be reassessed for recoverability considering the new 25% cap and “no new credit” rule – potential impairments may arise.
7. Practical tips from a CA’s desk
Immediately prepare a MAT position statement
Year-wise MAT paid, credit generated and utilised till FY 2025–26.
Expected expiry year of each tranche (based on 15-year limit under existing law).
Model both regimes for FY 2026–27 onwards
Compare:
Scenario A – continue in old regime with MAT @14% (final, no credit).
Scenario B – shift to new regime, apply 25% MAT credit cap each year.
Use conservative profit projections and consider minimum utilisation of credit.
Align MAT strategy with business milestones
Large expansion, IPO, funding round, lender covenants – all need a clean, predictable tax profile.
Review incentives and special deductions
If you’re staying in old regime only to enjoy certain incentives, re-check if net benefit after MAT is really positive.
Communicate with auditors & lenders early
Give them a clear plan on MAT credit utilisation / write-down so that there are no surprises in financials.
For groups / MNCs
Factor MAT changes into global effective tax rate (ETR) planning and group reporting.
8. Key Takeaways for Business Owners
MAT is getting leaner but tougher – 14% rate, but no new credit in old regime.
Old regime MAT from FY 2026–27 is effectively a final tax, not an advance.
Existing MAT credits become a slow-release asset: usable mainly in new regime and limited to 25% of tax per year (for domestic companies).
Companies with large MAT credit must urgently rework their tax strategy.
For many, shifting to the new concessional regime may become commercially inevitable.
Early planning can avoid unpleasant hits to profit, net worth and cash flows.
Talk to your CA / tax advisor now; don’t wait till after 1 April 2026 to react.
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