Budget 2026 Proposes Comprehensive Overhaul of Minimum Alternate Tax Framework
The Union Budget 2026-27 has introduced significant reforms to the Minimum Alternate Tax (MAT) framework for companies, marking a substantial shift in corporate taxation policy. The government has proposed reducing the MAT rate to 14% from the current 15%, while simultaneously making MAT a final tax under the old corporate tax regime. This move represents a strategic effort to streamline India's corporate tax structure and encourage businesses to transition toward the newer, simplified tax system.
Key Changes to MAT Structure and Implementation
Under the current system, companies opting for the old tax regime—which offers rates between 25-30% depending on turnover along with various deductions—must pay MAT on book profits when these exceed their normal income-tax liability. The excess amount has traditionally been eligible for carry forward as MAT credit for up to 15 years. However, the Budget proposes to discontinue fresh MAT credit accumulation in the old regime, even as it implements the rate reduction.
Going forward, MAT paid under the old regime will be treated as a final tax, with no new MAT credit allowed. This represents a fundamental change in how MAT functions within the existing corporate tax framework.
Transition Provisions and New Regime Adjustments
While the old regime faces stricter MAT rules, limited relief is being extended to companies under the new tax regime. Domestic companies choosing the new system—which offers a lower rate of 15% with no deductions—will be permitted to set off existing MAT credit up to 25% of their tax liability. Foreign companies will receive slightly different treatment, allowed to adjust MAT credit to the extent of the difference between normal tax and MAT in years where regular tax exceeds MAT liability.
Tax experts have noted that these amendments appear designed to encourage migration toward the new tax regime. Ameet Patel, partner at Manohar Chowdhry & Associates, observed that the changes seem to be "a step towards forcing companies to go under the 'new regime' with the probable aim of doing away with the old one."
Legal Perspective on MAT Credit Transition
Deepak Joshi, a Supreme Court advocate, provided additional clarity on the transition mechanism: "MAT mechanism is available only in the old regime as of now. The proposed amendment allows carry forward and set off of the MAT credit from the old regime into the new regime, subject to conditions... The cap of maximum period of carry forward and set off of 15 years is to be counted from the initial year in which such MAT credit was carried forward. This promotes transition."
This structured approach to MAT credit transition ensures that companies moving to the new regime can utilize accumulated credits while maintaining temporal limitations that prevent indefinite carry-forwards.
Broader Implications for Corporate Taxation
The MAT overhaul forms part of a broader budgetary strategy that includes:
- Simplification of corporate tax compliance
- Gradual phasing out of complex deduction-based systems
- Encouragement of adoption of the lower-rate, no-deduction new regime
- Reduction of litigation through clearer final tax provisions
These changes come alongside other Budget 2026 announcements affecting personal taxation, goods pricing, and state-level responses, creating a comprehensive fiscal package that aims to balance revenue generation with economic stimulus.
