In a major reform aimed at accelerating the transition of companies to the new corporate tax regime, Union Finance Minister Nirmala Sitharaman on Saturday announced sweeping changes to the Minimum Alternate Tax (MAT) framework in the Union Budget 2026–27. The government has proposed to make MAT a final tax and significantly rationalise the treatment of accumulated MAT credit, marking a decisive shift in corporate taxation policy.
MAT Credit Set-Off Linked Exclusively to New Regime
To incentivise companies to opt for the new tax regime, the Budget proposes that set-off of brought forward MAT credit will be allowed only if a company migrates to the new regime. Companies remaining under the old tax structure will no longer be eligible to utilise accumulated MAT credit.
Further, the utilisation of MAT credit under the new regime will be capped at one-fourth (25%) of the tax liability for a given year. This calibrated approach seeks to balance revenue certainty for the exchequer while providing a gradual transition benefit to taxpayers.
MAT to Become Final Tax from April 1, 2026
In a landmark move, the Finance Minister announced that MAT will be treated as a final tax with effect from 1 April 2026. Consequently, no further MAT credit will accumulate for taxes paid on or after this date. This change is expected to simplify corporate tax compliance by eliminating long-term credit tracking and disputes around MAT adjustments.
MAT Rate Reduced to 14%
Recognising the implications of making MAT a final levy, the government has proposed to reduce the MAT rate to 14% from the current 15%. The rate cut is aimed at ensuring that the effective tax burden remains competitive and aligned with India’s broader objective of creating a predictable and investor-friendly tax environment.
Transitional Relief for Existing MAT Credit
The Finance Minister clarified that MAT credit accumulated up to 31 March 2026 will not lapse. Such brought forward credit will continue to be available for set-off, subject to the newly prescribed limit of 25% of tax liability under the new regime. This transitional provision is intended to protect legacy credits while nudging companies towards the simplified tax structure.
