[Opinion] Minimum Alternate Tax | Judicial Principles and Transition to the New Regime

Amresh Kumar Sood – [2026] 185 taxmann.com 723 (Article)

1. Synopsis

The introduction of the Income-tax Act, 2025, effective 01.04.2026, together with the Finance Bill 2026, recasts India’s Minimum Alternate Tax (MAT) framework for companies. Section 206 of the 2025 Act replaces the earlier Section 115JB of the 1961 Act while largely preserving the computational architecture of “book profit” and the “lower of loss or unabsorbed depreciation” rule. At the same time, two structural changes fundamentally alter MAT’s role in corporate tax planning: MAT under the old regime becomes a final tax (no further credit generation), and the rate on book profits is reduced from 15% to 14%.

For companies contemplating or compelled to move to the new concessional regime, the transition year (FY 2025-26) becomes critical. Existing MAT credit, unabsorbed depreciation and brought forward business losses must be carefully evaluated, as the new regime generally preserves only a capped, time-bound utilisation of historic MAT credit while forcing forfeiture of most other tax attributes. The cumulative, “like from like” set off methodology, affirmed in decisions such as Sungroup Enterprises Pvt. Ltd. v. Dy. CIT, continues to be directly relevant in the new statutory setting.

2. Evolution of MAT and the New Statutory Framework

MAT was originally enacted to address “zero tax companies” that reported significant book profits, distributed dividends and yet paid little or no tax under normal provisions. The basic mechanism has remained consistent over time: the company’s tax liability is the higher of (a) tax on total income under normal provisions and (b) a specified percentage of “book profit” as per its financial statements prepared under the Companies Act.

Under the former regime, this was codified in Section 115JB of the Income-tax Act, 1961. Book profit was defined by starting from net profit in the profit and loss account and making a closed list of additions and deductions, including a deduction for the lower of brought forward business loss (excluding depreciation) or unabsorbed depreciation, as per the books. Judicial pronouncements repeatedly emphasised that the Assessing Officer (AO) could not travel beyond the audited accounts or beyond the explicit statutory adjustments.

The new Income-tax Act, 2025 recasts these provisions in Section 206. Sub-section (1) retains the “higher of normal tax or MAT on book profit” principle, while sub-section (2) modernises the book profit definition, aligning it with Ind AS and current Companies Act requirements. The familiar “lower of loss or unabsorbed depreciation” deduction is now housed in Section 206(2)(iii), conceptually corresponding to the earlier Explanation 1(iii) to Section 115JB. Sub section (3) codifies the AO’s limited jurisdiction—book profit is to be taken from audited accounts, subject only to the adjustments expressly listed in Section 206(2).

The Finance Bill 2026 then overlays three key policy shifts for companies under the old regime:

• MAT on book profit becomes a final tax; no new MAT credit will be generated after the transition.
• The MAT rate is reduced from 15% to 14%, offering partial rate relief.
• For companies that opt into the new regime, historic MAT credit as on 31.03.2026 remains usable but subject to an annual cap (e.g., 25% of regular tax), while other carry forwards are typically lost.

3. Judicial Principles: Cumulative Aggregation and “Like-from-Like” Set off

The doctrinal backbone of MAT computations continues to be supplied by earlier jurisprudence, which the new Act effectively incorporates by design rather than displacing.

3.1 Sanctity of Audited Accounts

The Supreme Court decisions in Apollo Tyres v. CIT and Jt. CIT v. Rolta India Ltd. establish three important propositions:

• The AO cannot re cast the profit and loss account that has been prepared in accordance with the Companies Act and audited.
• Book profit for MAT purposes must be derived strictly by making the additions and deductions specified in the statute; there is no residual discretion.
• MAT provisions operate as a self contained code for book profit computations; interest and other consequences apply accordingly.

These principles are now mirrored in Section 206(2)–(3), which confine the AO to checking statutory adjustments rather than re evaluating commercial accounts.

3.2 Loss vs. Depreciation under the “Lower of” Rule

A large body of decisions has converged on a consistent interpretation of the “loss brought forward or unabsorbed depreciation, whichever is less” formulation:

• “Loss” for this purpose means business loss excluding depreciation; depreciation is tracked separately.
• The comparison is between cumulative brought forward business loss and cumulative unabsorbed depreciation, as reflected in the books on the first day of the previous year.
• Only the lower of these two cumulative balances is deductible from book profit, and only from its own component (“like from like”).

Cases such as Milan Intermediates LLP v. ITO8, Amline Textiles (P) Ltd. v. ITO, Rashtriya Ispat Nigam Ltd., In re PVR Pictures Ltd. v. Dy. CIT have rejected year wise or discretionary sequencing. The taxpayer cannot choose to exhaust business loss first if the lower cumulative figure is unabsorbed depreciation; similarly, the AO cannot impose a methodology that departs from the statute.

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