# Minimum Alternate Tax in India for Foreign Companies and Subsidiaries

> Source: https://krystal7.com/insights/minimum-alternate-tax-foreign-companies-india
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 31 Mar 2026; updated 24 Oct 2026
> Summary: Minimum alternate tax is 14 percent of book profit from tax year 2026-27 under section 206, as a final tax with no new MAT credit for companies.

*Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.*

## AI Overview Summary

- From tax year 2026-27, MAT under section 206 of the Income Tax Act, 2025 is 14 percent of book profit, plus surcharge and cess. It is a final tax, so no new MAT credit arises.
- MAT does not apply to a company that opted for the section 200 regime (old section 115BAA), or to a treaty resident foreign company with no permanent establishment in India.
- A non treaty foreign company is outside MAT if it need not register under Indian company law. So is one earning only presumptive income from shipping, aircraft, power projects or oil services.
- MAT credit built up to 31 Mar 2026 keeps its fifteen year life. A domestic company can use it only after moving to section 200 or 201, capped at 25 percent of its tax liability.
- A foreign company with an Indian PE can still set off old MAT credit in a year when normal tax exceeds MAT, up to the difference between the two.

**Minimum alternate tax (MAT) is 14 percent of book profit under section 206 of the Income Tax Act, 2025, from tax year 2026-27. It applies when a company's normal tax is lower. MAT is now a final tax, so no new credit arises. It does not apply to companies in the section 200 regime, or to treaty resident foreign companies with no permanent establishment in India.**

This page is for foreign companies with income in India and for the boards of Indian subsidiaries choosing a tax regime. It covers the rate, book profit, the foreign company exclusions, MAT credit, the section 200 choice and worked examples. Amounts are in lakh and crore, so INR 1 crore is INR 100 lakh.

## What is minimum alternate tax in India?

MAT makes a company pay at least a fixed share of its accounting profit as tax. A company computes normal tax on taxable income and MAT on book profit, then pays the higher figure. Section 115JB of the Income Tax Act, 1961 charged MAT until financial year 2025-26. Section 206(1) of the Income Tax Act, 2025 charges it from tax year 2026-27.

The gap between book profit and taxable income comes from deductions and allowances in the Act. Tax holidays, profit linked deductions and faster tax depreciation all lower taxable income without lowering book profit. MAT stops a profitable company from paying little or no tax because of them.

Section 206(1)(a) applies "irrespective of anything contained" elsewhere in the Act. Where tax on total income is below MAT, book profit is treated as total income. The company then pays MAT plus surcharge and cess.

| Item | Up to financial year 2025-26 | From tax year 2026-27 |
|---|---|---|
| Charging section | Section 115JB, Income Tax Act, 1961 | Section 206(1), Income Tax Act, 2025 |
| MAT rate | 15% of book profit | 14% of book profit |
| Rate for an IFSC unit earning only in convertible foreign exchange | 9% | 9% |
| Credit for MAT paid over normal tax | Yes, section 115JAA, fifteen years | None for new MAT; old credit survives |
| Accountant's report on book profit | Form 29B | Form 66 |
| Alternate minimum tax for non companies | Section 115JC | Section 206(2) |

Sources: section 206 of the Income Tax Act, 2025; Income Tax Department MAT and AMT page; Budget speech of 1 Feb 2026, paragraphs 142 and 143.

## What is the MAT rate for tax year 2026-27?

The MAT rate is 14 percent of book profit from tax year 2026-27, plus surcharge and 4 percent cess where they apply. The Budget speech of 1 Feb 2026 announced the cut from 15 percent. The Finance Act, 2026 (Act No. 4 of 2026) enacted it. An IFSC unit that earns only in convertible foreign exchange still pays 9 percent.

The Income Tax Department's MAT and AMT page states the test. A company is liable where its tax on total income is less than 14 percent of its book profit, plus surcharge and health and education cess. The page uses 14 percent in its illustrations for tax year 2026-27.

For financial year 2025-26, the return due in 2026 still uses section 115JB at 15 percent. That year's MAT can still create MAT credit, because the credit stops only from 1 Apr 2026.

| Company and income band | MAT base rate (%) | Surcharge (%) | Effective MAT with 4% cess (%) |
|---|---|---|---|
| Domestic company, book profit up to INR 1 crore | 14 | 0 | 14.56 |
| Domestic company, above INR 1 crore up to INR 10 crore | 14 | 7 | 15.5792 |
| Domestic company, above INR 10 crore | 14 | 12 | 16.3072 |
| Foreign company, up to INR 1 crore | 14 | 0 | 14.56 |
| Foreign company, above INR 1 crore up to INR 10 crore | 14 | 2 | 14.8512 |
| Foreign company, above INR 10 crore | 14 | 5 | 15.288 |

Sources: section 206(1)(b) of the Income Tax Act, 2025; Finance Act, 2026, First Schedule, surcharge Table 1. We apply the surcharge slab on book profit where MAT is payable, as was the practice under section 115JB. Marginal relief applies at each threshold.

## How is book profit calculated?

Book profit starts from the net profit in the statement of profit and loss. Most companies prepare it under Schedule III to the Companies Act, 2013. Banks, insurers and electricity companies use the format of their own law. Section 206(1)(c) and (d) then list the additions and deductions.

The main additions under section 206(1)(c) are:

1. Income tax paid or payable, and the provision for it, including interest, surcharge and cess.
2. Amounts carried to reserves.
3. Provisions for unascertained liabilities and for diminution in the value of assets.
4. Provisions for losses of subsidiaries.
5. Dividends paid or proposed.
6. Depreciation as charged in the accounts.
7. Deferred tax and the provision for it.

The main deductions are:

1. Amounts withdrawn from reserves or provisions that were added back earlier.
2. Depreciation, other than on revaluation.
3. Deferred tax credited to the profit and loss account.
4. The lower of brought forward loss before depreciation and unabsorbed depreciation, as per the books.

Section 206(1)(d) adds further adjustments. They cover foreign companies with specified income taxed below the MAT rate, companies under insolvency, and Ind AS items. Ind AS companies adjust for other comprehensive income items, demerger distributions and the transition amount. The MAT and AMT page says the transition amount is spread over five years. Our batch guide to [Ind AS applicability for a foreign subsidiary](/insights/ind-as-applicability-private-companies-foreign-subsidiary) covers which companies use Ind AS.

Section 206(1)(g) requires the same accounting policies, standards and depreciation method as the accounts laid before the annual general meeting. You cannot prepare a second set of accounts for MAT.

Interest disallowed under section 177, the thin capitalisation rule, does not change book profit. The interest stays deducted in the accounts. Our batch guide to the [interest limitation rule](/insights/interest-limitation-thin-capitalisation-india) shows how that add back affects normal tax only.

## Does MAT apply to foreign companies?

MAT applies to a foreign company only in some cases. Section 206(1)(l) excludes three groups. One is a treaty resident with no permanent establishment in India. Another is a non treaty resident not required to register under Indian company law. The third is a company earning only specified presumptive income. A foreign company outside these groups, such as one with an Indian branch, must test MAT.

| Foreign company position | Is MAT relevant? | Provision |
|---|---|---|
| Treaty country resident earning royalty, fees or interest with no PE in India | No | 206(1)(l)(i) |
| Treaty country resident with a branch, project office or other PE in India | Yes | Outside 206(1)(l)(i) |
| Resident of a country with no treaty, with no duty to register under Indian company law | No | 206(1)(l)(ii) |
| Resident of a country with no treaty that must register as a foreign company in India | Yes | Outside 206(1)(l)(ii) |
| Income only from operating ships, operating aircraft, a turnkey power project or mineral oil services, taxed at the presumptive rates | No | 206(1)(l)(iii), section 61(2) Table items 1, 3, 4 and 5 |
| Specified income such as capital gains on securities, interest, royalty or fees taxed below the MAT rate | That income and its expenses leave book profit | 206(1)(d) |
| Unit in an IFSC earning only in convertible foreign exchange | Yes, at 9 percent | 206(1)(b) |

Sources: section 206 of the Income Tax Act, 2025; Income Tax Department MAT and AMT page.

For the excluded foreign companies, the MAT and AMT page says the provisions "shall not be applicable and shall be deemed never to have been applicable". The old section 115JB carried the same exclusions in Explanations 4 and 4A.

Section 61(2) also covers two other presumptive businesses. They are operating cruise ships, and providing services or technology to a resident company for setting up an electronics manufacturing facility in India. The section 206 text on incometaxindia.gov.in names only Table items 1, 3, 4 and 5. Item 44 of the Memorandum to the Finance Bill, 2026 proposed excluding these two businesses from MAT as well. That section page had not been updated for the Finance Act, 2026 when we read it on 23 Oct 2026. Check section 206(1)(l)(iii) as amended by the Finance Act, 2026 before you treat cruise ship or electronics services income as outside MAT.

### Why most foreign companies never pay MAT

A foreign company pays normal tax at 35 percent of total income under the Finance Act, 2026. MAT at 14 percent of book profit exceeds that only when taxable income is below 40 percent of book profit. A branch or project office rarely reaches that gap, because few deductions open it. Our guides to [corporate tax rates for foreign companies](/insights/corporate-tax-rates-in-india-for-foreign-companies) and [branch offices in India](/insights/branch-office-in-india-rbi-rules) cover the normal tax side.

The bigger risk is creating a PE without noticing. A treaty resident with a PE loses the first exclusion and must file a return with a MAT computation. Our guide on [avoiding permanent establishment risk](/insights/how-to-avoid-permanent-establishment-risk-in-india) covers the usual triggers.

## Does MAT apply to an Indian subsidiary of a foreign company?

An Indian subsidiary is a domestic company, so the foreign company exclusions never help it. MAT applies unless the subsidiary has opted for the section 200 regime (old section 115BAA) or the section 201 regime. Section 206(1)(q) excludes companies that exercised those options. Life insurance income is also outside MAT.

Whether MAT bites depends on the gap between taxable income and book profit. The normal rate for tax year 2026-27 is 25 percent where turnover or gross receipts of tax year 2024-25 did not exceed INR 400 crore. It is 30 percent for other domestic companies outside section 200 (Finance Act, 2026, First Schedule).

* At the 25 percent rate, MAT at 14 percent exceeds normal tax when taxable income falls below 56 percent of book profit.
* At the 30 percent rate, the line is about 46.7 percent of book profit.
* In section 200 the question does not arise, because MAT does not apply.

These ratios ignore surcharge differences between the two computations.

Most foreign owned subsidiaries with routine profits pay normal tax above MAT. MAT bites in subsidiaries with tax holidays, large profit linked deductions or big tax depreciation. It also bites where tax losses brought forward exceed the book losses.

## Can a company in the section 200 regime pay MAT?

No. Section 206(1)(q) of the Income Tax Act, 2025 switches MAT off for a company that exercised the option under section 200(5) or 201(2). Section 200 taxes a domestic company at 22 percent of total income, plus surcharge and cess, if it gives up most deductions. The option cannot be withdrawn once exercised.

Section 200 sets two main conditions. The company forgoes the deductions in section 205(1)(a) to (g) and most Chapter VIII deductions. It also forgoes those under sections 45(2) and 47(1)(b). It also cannot set off losses or depreciation linked to those deductions. If it breaches a condition in any year, the option lapses for that year and later years.

The option must be exercised on or before the due date for the return under section 263(1). Section 536(2)(f) treats an option exercised under the 1961 Act as made under the 2025 Act. So a subsidiary that opted for section 115BAA in an earlier year is already in section 200.

Under the 1961 Act, a section 115BAA company paid a flat 10 percent surcharge, whatever its income. The same applies for tax year 2026-27. The [Memorandum explaining the Finance Bill, 2026](https://www.indiabudget.gov.in/doc/memo.pdf) puts the section 200 rate at 22 percent. It says "Surcharge would be at 10% on such tax". It adds cess at 4 percent in all cases. The effective rate is 25.168 percent.

## What happens to MAT credit from 1 April 2026?

No new MAT credit arises from tax year 2026-27, because MAT is now a final tax. Credit built up to 31 Mar 2026 survives under section 536(2)(l) for its original fifteen year life. How a company can use it depends on whether it is domestic or foreign. Budget speech paragraph 142 announced the domestic cap at "1/4th of the tax liability in the new regime".

| Company | Can it use MAT credit up to 31 Mar 2026? | Limit on set off | Can new credit arise? |
|---|---|---|---|
| Domestic company that stays outside section 200 | No, until it moves to section 200 or 201 | Not applicable | No |
| Domestic company in section 200 or 201 | Yes | 25 percent of the tax payable on total income | No |
| Foreign company liable to MAT | Yes, in a year when normal tax exceeds MAT | The excess of normal tax over MAT | No |
| Private company or unlisted public company converted into an LLP | No, the credit does not pass to the LLP | Not applicable | No |

Sources: Income Tax Department MAT and AMT page; section 536(2)(l) of the Income Tax Act, 2025; Budget speech of 1 Feb 2026, paragraphs 142 and 143, and the Annexure to Part B, item 5(i).

The MAT and AMT page says "No new MAT credit accrues under the ITA 2025". It also says a company in the normal regime "cannot utilise accumulated MAT credit until it shifts to the concessional regime". The credit still lapses after the fifteenth tax year after the year it first became allowable.

Neither official text says whether the 25 percent cap is measured before or after surcharge and cess. The Budget speech says "1/4th of the tax liability in the new regime". The MAT and AMT page says "25% of the tax payable for that year". Read section 206 as amended by the Finance Act, 2026 before you file. Our worked example shows the cap both ways.

A domestic company with a large credit balance now faces a hard choice. Staying in the normal regime may give a lower tax bill today, but the credit stays frozen. Moving to section 200 releases the credit at a quarter of each year's tax. That move cannot be reversed.

## How should an Indian subsidiary choose between the regimes?

Compare three numbers for at least three tax years. The first is tax in the normal regime, the higher of normal tax and MAT at 14 percent. The second is tax in section 200 at 22 percent plus surcharge and cess. The third is the MAT credit you can set off in section 200, capped at 25 percent of that tax.

We weigh these points with the board:

1. **Deductions the company would lose.** Section 200 disallows the deductions listed in section 205(1). A subsidiary with a running tax holiday may still be better off in the normal regime until it ends.
2. **The MAT credit balance and its expiry dates.** Credit that lapses before the company can use it is lost. A long balance favours an earlier move.
3. **Profit growth.** A higher tax bill in section 200 means a higher 25 percent cap, so the credit unwinds faster.
4. **Losses and depreciation.** Section 200 treats losses and depreciation linked to the forgone deductions as used up.
5. **Irreversibility.** The option cannot be withdrawn under section 200, so the model must cover the years after the holiday.

The worked example below runs these numbers. Our guides to [ITR-6 for a foreign owned company](/insights/itr-6-for-foreign-owned-company) and the [Income Tax Act, 2025 changes](/insights/income-tax-act-2025-changes-for-foreign-owned-companies) cover the return side.

## When is the MAT report Form 66 due?

A company liable to MAT files a chartered accountant's report on its book profit. Under section 206(1)(s) it is Form 66 (old Form 29B). The official sources word the deadline in three ways:

1. The section 206 page on incometaxindia.gov.in ties it to the section 63 date, which is the tax audit date.
2. The MAT and AMT page says at least one month before the return due date under section 263(1).
3. The Form 66 FAQs (FAQ 8) say it is filed along with the return.

The section page and the MAT and AMT page also allow filing with a return made in response to a notice under section 268(1)(a). We file Form 66 with or before the tax audit report, which meets every reading.

For financial year 2025-26, the last year under section 115JB, the old Form 29B applies under section 115JB(4). Form 29B follows the tax audit date. CBDT Circular No. 07/2026 appeared on the income tax portal on 29 Sep 2026. It moved that date to 21 Oct 2026 for companies without a transfer pricing report. Companies with a transfer pricing report kept 31 Oct 2026, with the return due on 30 Nov 2026.

The same auditor usually signs Form 66 and the tax audit report in Form 26. Our guide to the [tax audit under section 63 and Form 26](/insights/tax-audit-under-income-tax-act-2025-form-26) covers the audit timetable.

## What changed in 2026

| Old rule | New rule | Date | Instrument |
|---|---|---|---|
| MAT at 15 percent of book profit under section 115JB | MAT at 14 percent under section 206 | Tax year 2026-27 (1 Apr 2026) | Finance Act, 2026; Income Tax Act, 2025 |
| MAT paid over normal tax created credit for fifteen years | MAT is a final tax; no new credit | 1 Apr 2026 | Finance Act, 2026 |
| Any company could set off MAT credit when normal tax exceeded MAT | Domestic companies may use it only after moving to section 200 or 201, up to 25 percent of tax | Tax year 2026-27 | Finance Act, 2026; Budget speech paragraph 142 |
| Foreign companies set off credit up to the excess of normal tax over MAT | Unchanged for foreign companies | Tax year 2026-27 | Budget Annexure item 5(i) |
| Report of book profit in Form 29B | Form 66 | Tax year 2026-27 | Income Tax Rules, 2026 |
| Section 115BAA option | Section 200 option, carried over by section 536(2)(f) | 1 Apr 2026 | Income Tax Act, 2025 |
| Foreign company exclusions in Explanations 4 and 4A to section 115JB | Section 206(1)(l) | 1 Apr 2026 | Income Tax Act, 2025 |

Sources: Budget speech of 1 Feb 2026; Income Tax Department MAT and AMT page; sections 200, 206 and 536 of the Income Tax Act, 2025.

### What has happened since 31 Mar 2026

* On 1 Apr 2026 the Income Tax Act, 2025 and the Income Tax Rules, 2026 came into force. MAT moved to section 206.
* On 29 Sep 2026 the income tax portal published CBDT Circular No. 07/2026. For financial year 2025-26, it moved the Form 29B and tax audit date to 21 Oct 2026 in non transfer pricing cases.
* The section 206 page on incometaxindia.gov.in still showed 15 percent when we read it on 23 Oct 2026. It also showed no 25 percent cap and no change to the presumptive income exclusion. The department's MAT and AMT page shows 14 percent and the 25 percent cap. We follow the MAT and AMT page and the Finance Act, 2026.
* The Form 66 FAQs (FAQs 17 and 18) still describe MAT credit as carrying forward unchanged. The MAT and AMT page and the Budget speech say no new credit arises from 1 Apr 2026. We follow the latter two.

Our batch guide to [Union Budget 2026 for foreign owned companies](/insights/union-budget-2026-foreign-owned-companies-non-residents) covers the other corporate tax changes.

## Worked example

### An Indian subsidiary with a tax holiday

An Indian Private Limited subsidiary of a US parent had turnover of INR 120 crore in tax year 2024-25. Its normal rate is therefore 25 percent. In tax year 2026-27 it has the figures below. It holds MAT credit of INR 20 lakh from earlier years.

| Item (INR lakh) | Normal regime | Section 200 regime |
|---|---|---|
| Book profit | 90 | 90 |
| Taxable income | 30, after a profit linked deduction of 50 and other differences of 10 | 80, the deduction is lost |
| Normal tax at 25% or 22% | 7.5 | 17.6 |
| Surcharge | 0, income below INR 1 crore | 1.76 at 10% |
| Cess at 4% | 0.3 | 0.7744 |
| Normal tax with surcharge and cess | 7.8 | 20.1344 |
| MAT at 14% plus 4% cess | 13.104 | Not applicable |
| Tax before MAT credit | 13.104 (MAT is higher) | 20.1344 |
| MAT credit set off | 0, credit frozen | 5.0336, the 25% cap |
| Tax payable | 13.104 | 15.1008 |
| MAT credit carried forward | 20 | 14.9664 |
| New MAT credit created | 0 | 0 |

The table applies the 25 percent cap to tax including surcharge and cess. If the cap is measured on tax before surcharge and cess, it is 25 percent of INR 17.6 lakh, or INR 4.4 lakh. Tax payable in section 200 then rises to INR 15.7344 lakh.

The normal regime costs INR 1.9968 lakh less this year. But it pays MAT as a final tax, and the INR 20 lakh credit stays frozen. Under the old law, the INR 5.304 lakh of MAT above normal tax would have become new credit. From tax year 2026-27 it is a permanent cost.

### The same subsidiary after the holiday ends

In tax year 2028-29 the deduction ends. Taxable income is INR 80 lakh in both regimes and book profit stays at INR 90 lakh.

| Item (INR lakh) | Normal regime | Section 200 regime |
|---|---|---|
| Normal tax with cess, and surcharge where it applies | 20.8 | 20.1344 |
| MAT at 14% plus 4% cess | 13.104 | Not applicable |
| Tax before MAT credit | 20.8 | 20.1344 |
| MAT credit set off | 0, credit still frozen | 5.0336 |
| Tax payable | 20.8 | 15.1008 |

Once the holiday ends, section 200 saves INR 5.6992 lakh a year while the credit lasts. The board's real question is the year of the move. Moving in tax year 2026-27 costs about INR 2 lakh in that year. Waiting risks losing credit that expires before the 25 percent cap can absorb it. We map each credit year's expiry before advising.

### A UK company with a project office in India

A UK company runs a project office that is a PE in India. The office's book profit for tax year 2026-27 is INR 500 lakh and its taxable income is INR 460 lakh. The company holds INR 30 lakh of MAT credit from earlier years.

| Item (INR lakh) | Amount |
|---|---|
| Normal tax at 35% on 460 | 161 |
| Surcharge at 2% (income above INR 1 crore up to INR 10 crore) | 3.22 |
| Cess at 4% | 6.5688 |
| Normal tax with surcharge and cess | 170.7888 |
| MAT at 14% on 500, with 2% surcharge and 4% cess | 74.256 |
| Excess of normal tax over MAT | 96.5328 |
| MAT credit set off, the lower of 30 and 96.5328 | 30 |
| Tax payable after credit | 140.7888 |

Normal tax is more than double MAT, so the office pays normal tax. As a foreign company, it can still use its old credit up to the excess. It sets off all INR 30 lakh this year. A treaty resident UK company earning only royalties from India, with no PE, would not test MAT at all.

## Common mistakes

1. **Using 15 percent for tax year 2026-27.** The rate is 14 percent from 1 Apr 2026. Fix: use 15 percent only for financial year 2025-26 and earlier.
2. **Booking new MAT credit in the 2026-27 accounts.** MAT is now a final tax. Fix: treat MAT above normal tax as a tax cost, not a deferred tax asset.
3. **Assuming old MAT credit is usable in the normal regime.** A domestic company in the normal regime cannot use it. Fix: model the move to section 200 before relying on the credit.
4. **Ignoring credit expiry dates.** Credit lapses after fifteen tax years. Fix: keep a schedule of each year's credit and its last year.
5. **Treating a foreign company with a PE as exempt.** The no PE exclusion fails once a PE exists. Fix: test PE exposure each year and compute MAT for any Indian PE.
6. **Opting for section 200 during a running tax holiday without a model.** The option cannot be withdrawn. Fix: compare at least three years under both regimes first.
7. **Changing accounting policies for MAT.** Section 206(1)(g) requires the policies used in the audited accounts. Fix: compute book profit from the accounts adopted at the annual general meeting.
8. **Missing Form 66 or Form 29B.** The report must be filed no later than the return. Fix: diarise it with the tax audit date.

If your board is weighing the move to section 200, send us three years of accounts and the MAT credit schedule. We will model both regimes.

## Checklist

1. Confirm whether the company is domestic or foreign, and whether it has opted for section 200 or 201.
2. For a foreign company, test the section 206(1)(l) exclusions: treaty residence, PE, registration duty and presumptive income.
3. Compute book profit from the audited statement of profit and loss under section 206(1)(c) and (d).
4. Compute normal tax on total income at the correct rate, with surcharge and cess.
5. Compute MAT at 14 percent of book profit, with surcharge and cess, for tax year 2026-27.
6. Pay the higher figure, and record no new MAT credit from tax year 2026-27.
7. List MAT credit built up to 31 Mar 2026 by year, with each expiry year.
8. Model the normal regime and section 200 for at least three tax years before choosing.
9. Exercise the section 200 option, if chosen, on or before the section 263(1) due date.
10. File Form 66, or Form 29B for financial year 2025-26, with or before the tax audit report.

## Key terms

- **Minimum Alternate Tax (MAT)**: Tax on book profit that a company in the normal regime pays when its normal tax is lower, under section 115JB of the Income Tax Act, 1961 and section 206 of the Income Tax Act, 2025. The rate is 15 percent for FY 2025-26 and 14 percent from tax year 2026-27. MAT credit carries forward for 15 years. (https://krystal7.com/glossary#minimum-alternate-tax)
- **Book profit**: The net profit in a company's statement of profit and loss prepared under Schedule III to the Companies Act, 2013, as adjusted by the additions and deductions in section 206(1)(c) and (d) of the Income Tax Act, 2025. MAT is charged on this figure. (https://krystal7.com/glossary#book-profit)
- **MAT credit**: The excess of MAT paid over normal tax in a year up to 31 Mar 2026, carried forward under old section 115JAA and section 536(2)(l) of the Income Tax Act, 2025. It lapses after fifteen years and no new credit arises from tax year 2026-27. (https://krystal7.com/glossary#mat-credit)
- **Concessional tax regime (section 115BAA)**: Option for a domestic company to pay tax at 22 percent, plus a flat 10 percent surcharge and 4 percent cess, an effective 25.168 percent, by giving up specified deductions. MAT does not apply and the option cannot be withdrawn. It sits in section 115BAA of the Income Tax Act, 1961 and section 200 of the Income Tax Act, 2025. (https://krystal7.com/glossary#concessional-tax-regime-section-115baa)
- **Form 66 (old Form 29B)**: The chartered accountant's report that certifies a company's book profit computation for MAT under section 206 of the Income Tax Act, 2025. A company liable to MAT files it electronically on the income tax portal, with or before its return. (https://krystal7.com/glossary#form-66-old-form-29b)
- **Permanent Establishment (PE)**: A permanent establishment is a fixed place of business, a long running project or a dependent agent through which a foreign company carries on business in India, as defined in Article 5 of each Indian tax treaty. India taxes the business profits attributable to a PE through a return, at 35 percent plus surcharge and cess for a foreign company. (https://krystal7.com/glossary#permanent-establishment)

## Frequently Asked Questions

### What is the MAT rate in India for tax year 2026-27?

The MAT rate is 14 percent of book profit from tax year 2026-27, plus surcharge and 4 percent cess. Section 206 of the Income Tax Act, 2025 sets it. It was 15 percent under section 115JB up to financial year 2025-26. An IFSC unit earning only in convertible foreign exchange pays 9 percent.

### Is MAT a final tax now?

Yes. From 1 Apr 2026, MAT paid over normal tax creates no new credit. The Budget speech of 1 Feb 2026 announced this in paragraph 143. The Income Tax Department's MAT and AMT page says "No new MAT credit accrues under the ITA 2025". Credit built up to 31 Mar 2026 survives under section 536(2)(l).

### Does MAT apply to a foreign company with no PE in India?

No, if it is resident in a country with which India has a tax treaty. Section 206(1)(l)(i) of the Income Tax Act, 2025 excludes such a company. A non treaty resident is excluded under section 206(1)(l)(ii) only if it need not register under Indian company law. Both exclusions apply as if MAT never applied.

### Does MAT apply to the Indian branch of a foreign company?

Yes. A branch or project office is a permanent establishment, so the no PE exclusion fails. The foreign company computes book profit for its Indian operations and compares MAT at 14 percent with normal tax at 35 percent. MAT exceeds normal tax only when taxable income is below about 40 percent of book profit.

### Does MAT apply to companies that opted for section 115BAA?

No. Section 206(1)(q) of the Income Tax Act, 2025 excludes a company that opted under section 200(5), the successor of section 115BAA. Section 536(2)(f) carries an option exercised under the 1961 Act into section 200. Such a company pays 22 percent plus surcharge and cess and never computes MAT.

### Can an Indian subsidiary still use its old MAT credit?

Only if it moves to the section 200 or section 201 regime. A domestic company in the normal regime cannot use credit built up to 31 Mar 2026. In section 200, set off is capped at 25 percent of tax payable each year, as Budget speech paragraph 142 announced. The credit lapses after fifteen tax years.

### How can a foreign company use its MAT credit?

A foreign company can set off MAT credit in a year when normal tax exceeds MAT. The set off is limited to the excess of normal tax over MAT for that year. The Income Tax Department's MAT and AMT page and the Budget 2026 Annexure item 5(i) state this rule. No new credit arises from tax year 2026-27.

### Is MAT charged on presumptive income of non residents?

Not where a foreign company earns only presumptive income from ships, aircraft, a turnkey power project or mineral oil services. Section 206(1)(l)(iii) of the Income Tax Act, 2025 excludes it. The clause refers to section 61(2) Table items 1, 3, 4 and 5. The Memorandum to the Finance Bill, 2026 proposed adding cruise ships and electronics manufacturing services, so check the amended section 206.

### What is book profit for MAT?

Book profit is the net profit in the statement of profit and loss under Schedule III to the Companies Act, 2013. Section 206(1)(c) and (d) of the Income Tax Act, 2025 adjust it. Additions include income tax, reserves, unascertained provisions and deferred tax. Deductions include withdrawals from reserves and the lower of brought forward loss and unabsorbed depreciation.

### Which form is the MAT report under the Income Tax Act, 2025?

Form 66 replaces Form 29B. A chartered accountant certifies the book profit computation in it under section 206(1)(s) of the Income Tax Act, 2025. Official sources tie its deadline to the tax audit date, to one month before the return due date, or to the return itself. For financial year 2025-26 the old Form 29B still applies.

### Does surcharge apply to MAT?

Yes. MAT at 14 percent carries surcharge and 4 percent health and education cess where they apply. For a domestic company we apply 7 percent above INR 1 crore and 12 percent above INR 10 crore of book profit. For a foreign company we apply 2 percent and 5 percent. The rates come from the Finance Act, 2026.

### When does MAT bite for a domestic company?

At the 25 percent normal rate, MAT at 14 percent exceeds normal tax when taxable income falls below 56 percent of book profit. At 30 percent the line is about 46.7 percent. Tax holidays, profit linked deductions and high tax depreciation usually create that gap. Surcharge differences move these lines slightly.

### Can a company switch back from section 200 to the normal regime?

No. Section 200 of the Income Tax Act, 2025 says the option, once exercised, cannot be withdrawn for that year or any later year. The option lapses only if the company breaches its conditions. Model several years, including tax holidays and MAT credit expiry, before you exercise it on or before the section 263(1) due date.

### Does MAT apply to an LLP?

No. MAT under section 206(1) applies only to companies. A limited liability partnership that claims certain deductions faces alternate minimum tax under section 206(2) instead, at 18.5 percent of adjusted total income. MAT credit of a private company does not pass to the LLP on conversion under section 206(1)(r).

### Does thin capitalisation disallowance increase MAT?

No. Interest disallowed under section 177 of the Income Tax Act, 2025 is added back only in computing business income. Book profit under section 206 keeps the interest deducted, as in the accounts. A large section 177 add back raises normal tax, which can then exceed MAT.

## Sources

- Income Tax Department, Income Tax Act, 2025, section 206 (minimum alternate tax and alternate minimum tax), https://www.incometaxindia.gov.in/w/section-206-75
- Income Tax Department, MAT and AMT, https://www.incometaxindia.gov.in/w/mat-and-amt
- Income Tax Department, Income Tax Act, 1961, section 115JB, https://www.incometaxindia.gov.in/w/section-115jb-25
- Income Tax Department, Income Tax Act, 2025, section 200 (tax on income of certain domestic companies), https://www.incometaxindia.gov.in/w/section-200-77
- Income Tax Department, Income Tax Act, 2025, section 536 (repeal and savings), https://www.incometaxindia.gov.in/w/section-536-1
- Income Tax Department, Finance Act, 2026, First Schedule, https://www.incometaxindia.gov.in/w/first-schedule-104
- Income Tax Department, Income Tax Act, 2025, section 177, https://www.incometaxindia.gov.in/w/section-177-77
- Ministry of Finance, Budget 2026-27 speech, 1 Feb 2026, paragraphs 141 to 143 and Annexure to Part B, item 5(i), https://www.indiabudget.gov.in/doc/budget_speech.pdf
- Income Tax Department, FAQs on Form 66, https://www.incometaxindia.gov.in/documents/d/guest/form-66-faqs
- Ministry of Finance, Memorandum explaining the provisions in the Finance Bill, 2026 (rates for tax year 2026-27; item 44 on presumptive businesses), 1 Feb 2026, https://www.indiabudget.gov.in/doc/memo.pdf
- Income Tax Department, FAQs and guidance notes on forms as per Income Tax Rules, 2026, https://www.incometaxindia.gov.in/faqs-and-guidance-notes-on-forms-as-per-income-tax-rules-2026

---
Krystal7 Consultants, business@krystal7.com, +91 94657 30130. HTML version: https://krystal7.com/insights/minimum-alternate-tax-foreign-companies-india