Definition
MAT Credit
MAT credit is the excess of Minimum Alternate Tax paid over a company's normal tax liability, which can be carried forward and set off in future years.
When a company pays Minimum Alternate Tax that is higher than its tax under normal provisions, the difference is not lost — it becomes MAT credit that can be carried forward for a number of years. In a later year when normal tax exceeds MAT, the company can use the stored credit to reduce its bill.
This prevents MAT from becoming a permanent additional burden and instead makes it a timing mechanism. Companies switching to the concessional corporate tax regime, however, generally cannot carry forward accumulated MAT credit, a trade-off they must weigh.
Related terms
- Minimum Alternate Tax (MAT)Minimum Alternate Tax ensures that profitable companies which reduce their tax to near zero through exemptions still pay a minimum tax on their book profits.
- Book ProfitBook profit is the profit shown in a company's audited financial statements, used as the base for computing Minimum Alternate Tax.
- Alternate Minimum Tax (AMT)Alternate Minimum Tax is the equivalent of MAT for non-corporate taxpayers, ensuring that firms and individuals claiming certain deductions still pay a minimum tax.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.