Budget 2026–27: Rationalisation of Corporate Tax Provisions – FAQs Explained

Budget 2026 corporate tax Rationalisation FAQs

I. Reforms in MAT (Section 206 of the Income-tax Act, 2025)

Q.1 What is Minimum Alternate tax (MAT) as per the present provisions and when is it levied?

Ans: Minimum alternate tax is an alternate tax computation levied only on companies. This is a tax calculated at the rate of 15% of book profit. This is chargeable only when the Minimum alternate tax is more than the tax on income as per the normal provisions of the Income-tax Act, 2025.

Q.2 What is the benefit to the taxpayer when MAT is more than tax on income as per the normal provisions?

Ans: The tax paid under MAT to the extent it is more than tax as per normal provisions is allowed as credit in subsequent years where it can be set off when the tax under normal provisions is more than MAT.

Q.3 How many years can the credit under MAT be carried forward to?

Ans: The credit under MAT can be accumulated and carried forward up to the fifteenth tax year immediately succeeding the year in which such tax credit first becomes allowable

Q.4 Is MAT applicable to companies in the new tax regime?

Ans: No, MAT is not applicable to companies in the new tax regime.

Q.5 What is the proposed amendment to MAT provisions in Finance Bill, 2026.

Ans: It is proposed to –
i) Reduce the rate of MAT from 15% to 14% for companies who are in the old regime.
ii) However, MAT tax will be final tax and no new credit in respect of the tax paid @14% will be allowed from 01.04.2026.
iii) Further, the set off of credit of MAT will be allowed only to domestic companies who move to New tax regime from tax year 2026-27.
iv) The credit will be to the extent of one-fourth of the total tax liability for that year.
v) The credit of MAT accumulated upto 31/3/2026 shall be allowable upto fifteenth year from the year when the corresponding credit was first created.
vi) The credit of MAT shall be allowable to those entities who are presently in old regime and shift from old to new regime for tax year 2026-27 or subsequent tax year(s).
vii) Foreign companies will continue to be allowed utilisation of MAT credit.

Q.6 How much of MAT credit is proposed to be set off by a domestic company in a year?

Ans: In the new tax regime, a domestic company can set off MAT credit up to 25% of the total tax liability for that year. For example, if the tax liability is ₹100, then the MAT credit set-off for that year cannot exceed ₹25, if there is MAT credit available of at least ₹25.

Q.7 If a company is in the old regime, how do the proposed change in MAT provisions affect it?

Ans: As MAT becomes a final tax, no MAT credit will be generated for any year going forward. Thus, the rate of MAT has been reduced to 14% on book profits to account for the fact that subsequent credit of tax and its utilisation, is not available in respect of such payment.

Q.8 Can a domestic company in the old regime set off the accumulated MAT credit?

Ans: No, the MAT credit that is already available to a domestic company cannot be set off in the old regime. This may be utilised only after moving to the new tax regime (subject to the 25% cap) from tax year 2026-27 and onwards.

Q.9 What is the impact of the proposed MAT provisions on foreign companies?

Ans: As MAT becomes a final tax for foreign companies, no new MAT credit will be allowed from henceforth. Therefore, the rate of MAT has been reduced to 14% on book profits.

Q.10 Can the foreign companies set off any MAT credit that is carried forward till date?

Ans: Yes. in the case of foreign companies, the set off of brought forward MAT credit will be permitted to the extent of the difference between the regular tax liability and MAT liability, provided that the regular tax in the relevant tax year exceeds MAT.

Q.11 Will new MAT credit be generated for foreign or domestic companies under the amended provisions?

Ans: No. MAT is now a final tax under the old regime and MAT provisions are not applicable in the new concessional regime. Thus, no new MAT credit will be generated for any company.

Q.12 Which domestic companies can use the MAT credit accumulated from earlier years?

Ans: Only domestic companies moving to the New Tax regime for the tax year 2026-27 and onwards will be allowed to use the existing MAT credit.

Q.13 Will the 25% cap on MAT credit set-off apply annually or cumulatively?

Ans: The 25% restriction applies per tax year. A company can set off MAT credit up to 25% of its tax liability for each year under the new regime, until its credit balance is fully exhausted or 15 year period from the time credit was first allowed expires.

Q.14 Why is provision of set-off of MAT credit not available to companies who have previously opted for new tax regime?

Ans: A company’s shift to the New Tax Regime prior to this amendment was a business decision that was made on basis of the financials, status and analysis of the impact of deductions/exemptions in respective years and the tax liability upon these companies in the old as compared to the new tax regime. They have been benefitted as they had paid tax at rates applicable to new regime which were less than the old regime.

Q.15 Which foreign companies are exempt from paying MAT?

Ans: Any foreign company––
• which is a resident of a country with which India has a tax treaty (DTAA) and the company does not have a permanent office or base (PE) in India.
• which is a resident of a country with which India does not have a tax treaty, and the company is not required to register under Indian company laws.
• whose total income comes entirely from specific businesses governed by presumptive taxation under Section 61(2) of the Income-tax Act, 2025, and it has paid tax at the specific rates applicable to those businesses.

Q.16 When is this amendment applicable from?

Ans: The amendment shall take effect from the 1st day of April, 2026 and shall apply in relation to the tax year 2025-26 and subsequent tax years.