Clause 50 of the Finance Bill, 2026 proposes a structural rationalisation of the Minimum Alternate Tax (MAT) provisions contained in section 206 of the Income-tax Act, 2025. The amendment marks a shift away from the long-standing MAT credit carry-forward model and seeks to facilitate a cleaner transition from the old tax regime to the new tax regime for companies. The proposal:
- makes MAT a final tax under the old regime,
- reduces the MAT rate from 15% to 14%,
- allows restricted utilisation of MAT credit only in the new regime, and
- removes unintended MAT applicability for certain foreign companies under presumptive taxation.
The changes apply from 1 April 2026 (tax year 2026-27 onwards).
Existing MAT Framework: Brief Overview
Under section 206, MAT applies to companies where:
- tax is computed on book profit, not taxable income,
- MAT rate is 15% (except for IFSC units), and
- where MAT exceeds normal tax, the excess paid is allowed as MAT credit,
- carried forward for up to 15 years, and
- set off in years where normal tax exceeds MAT.
MAT currently operates only under the old tax regime.
Key Changes Introduced by Clause 50
1. MAT Made a Final Tax in the Old Regime
What Changes
Clause 50 provides that:
- MAT paid under the old tax regime shall be treated as final tax, and
- no fresh MAT credit shall arise from such payment.
To balance this change:
- the MAT rate is reduced from 15% to 14% of book profit.
Implications
- Ends long-term accumulation and tracking of MAT credit under the old regime
- Enhances certainty and simplicity for companies continuing in the old regime
- Rate reduction partly offsets the loss of future credit
This change does not abolish MAT; it alters its character under the old regime.
2. Restricted MAT Credit Set-off in the New Regime (Domestic Companies)
What Changes
For domestic companies opting for the new tax regime:
- MAT credit set-off is permitted, but
- the set-off is capped at 25% of the tax liability for the relevant year.
Implications
- Prevents full erosion of tax payable through MAT credit
- Enables gradual and controlled utilisation of legacy MAT credit
- Encourages transition to the new regime without abrupt loss of credit
3. MAT Credit Set-off for Foreign Companies
What Changes
For foreign companies:
- MAT credit set-off is allowed only to the extent of the difference between:
- tax on total income under normal provisions, and
- MAT liability for that tax year.
Implications
- Aligns MAT credit utilisation strictly with excess normal tax
- Avoids unlimited or disproportionate credit adjustment
- Brings clarity and parity in treatment of foreign companies
4. Expanded MAT Exclusion for Certain Foreign Companies
Existing Position
Section 206(1)(l) excludes MAT for foreign companies whose income consists solely of specified businesses taxed under section 61(2) at prescribed rates. However, some other specified businesses under presumptive taxation were inadvertently not covered.
Proposed Change
Clause 50 amends section 206(1)(l) by substituting sub-clause (iii) to extend MAT exclusion to additional specified businesses of non-residents taxed under section 61.
Implications
- Removes unintended MAT exposure for presumptively taxed foreign companies
- Aligns MAT provisions with the policy intent of presumptive taxation
- Reduces scope for interpretational disputes
MAT Framework: Before vs After
| Particulars | Existing Position | Proposed Position (from 1-4-2026) |
| MAT rate | 15% | 14% |
| MAT in old regime | Payable with credit | Final tax; no new credit |
| MAT credit – domestic company | Full set-off | Set-off capped at 25% (new regime only) |
| MAT credit – foreign company | As per general rules | Limited to excess of normal tax over MAT |
| MAT exclusion for specified foreign businesses | Limited | Expanded |
Policy Objective Behind the Amendment
- prolonged MAT credit carry-forward increased complexity,
- transition to the new tax regime required facilitation, and
- MAT needed simplification without abrupt withdrawal.
The amendment reflects a shift towards certainty, simplicity, and controlled transition, rather than deferred tax credits.
What the Amendment Does and Does Not Do
What It Does
- Simplifies MAT architecture
- Encourages movement to the new tax regime
- Rationalises MAT credit utilisation
- Reduces long-term compliance burden
What It Does Not Do
- ❌ Does not abolish MAT
- ❌ Does not extend MAT to non-companies
- ❌ Does not alter MAT for IFSC units
Effective Date
✔ 1 April 2026
✔ Applicable to tax year 2026-27 and subsequent years
Conclusion
Clause 50 of the Finance Bill, 2026 marks a decisive recalibration of the MAT regime. By converting MAT into a final tax under the old regime, lowering the rate, and tightly regulating MAT credit utilisation under the new regime, the amendment prioritises simplicity, predictability, and orderly transition.
The proposal retains MAT’s core purpose, ensuring minimum taxation on book profits, while moving away from long-term credit accumulation that added complexity without commensurate benefit.
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