Definition
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.
Some companies report large accounting profits and pay dividends yet, by using deductions and incentives, end up with little or no taxable income. MAT addresses this by levying a minimum tax computed on book profits rather than taxable income, so 'zero-tax companies' contribute a baseline amount.
MAT paid in excess of normal tax can be carried forward as MAT credit and set off in later years when regular tax exceeds MAT. Companies opting for the newer concessional corporate tax regime are generally exempt from MAT, which has reduced its relevance for many firms.
Related terms
- MAT CreditMAT 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.
- 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.