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Section 206 Income Tax Act 2025: What Are the Minimum Alternate Tax and Alternate Minimum Tax Rules?

Section 206 governs minimum alternate tax (MAT) for companies and alternate minimum tax (AMT) for specified non-corporate taxpayers. It also addresses computation of book profit, tax credits, exclusions and transitional credits.

Current law: Income-tax Act, 2025 (Act 30 of 2025), as amended by the Finance Act, 2026, effective from 1 April 2026. The general MAT rate was reduced from 15% to 14% by the Finance Act, 2026.

What is minimum alternate tax under Section 206(1)?

If a company's income-tax liability computed under the ordinary provisions is lower than its minimum alternate tax, its adjusted book profit is treated as total income and MAT becomes payable, subject to statutory exceptions.

Category	MAT rate on book profit
Qualifying International Financial Services Centre (IFSC) unit deriving income solely in convertible foreign exchange	9%
Other companies to which MAT applies	14%

Applicable surcharge and cess, where required, must be considered separately. The 14% rate reflects the Finance Act, 2026 amendment.

Which companies are excluded?

Section 206(1) provides exclusions including qualifying life-insurance business, domestic companies exercising the options under Section 200(5) or Section 201(2), and certain foreign companies satisfying the statutory criteria. These exceptions must be tested against the exact facts.

How is book profit calculated?

Book profit begins with profit shown in the prescribed statement of profit and loss, followed by additions and reductions specifically required under Section 206(1)(c) and (d). Typical additions include income-tax provisions, certain reserves, unascertained liabilities, depreciation and deferred tax when debited. Specified reductions include eligible withdrawals from reserves, depreciation adjustments, deferred tax credited, and eligible brought-forward loss or unabsorbed depreciation subject to the statutory tests.

Special adjustments also apply to certain foreign-company income, business-trust transactions, patent royalty, insolvency cases and Ind AS financial statements. The statutory formula must be applied in full; ordinary accounting profit alone is not necessarily book profit for MAT.

Illustration: If adjusted book profit is Rs. 1 crore and the ordinary tax liability is Rs. 10 lakh, a company subject to the general 14% MAT rate would have a basic MAT amount of Rs. 14 lakh, before applicable surcharge, cess and other adjustments.

How does alternate minimum tax apply under Section 206(2)?

AMT addresses specified taxpayers other than companies where tax computed under ordinary provisions falls below the alternate minimum tax on adjusted total income. Section 206(2) contains its own rate provisions, adjustments, exceptions and reporting obligations. It does not apply to persons opting under Sections 203(5) or 204(2), persons taxed under Section 202(1), specified funds, and certain individuals, HUFs, associations and other persons where adjusted total income does not exceed Rs. 20 lakh.

For a precise AMT computation, refer to the applicable sub-clauses of Section 206(2), including the applicable rate for the assessee's category.

What happens to MAT and AMT credits?

Section 206 sets out credit and carry-forward rules, including AMT credit generally usable when regular income-tax exceeds AMT, subject to limits and a fifteen-tax-year period. The Finance Act, 2026 also provides transitional rules for unused MAT credit under Section 115JAA of the Income-tax Act, 1961. For qualifying domestic companies that elected the regimes under Sections 200(5) or 201(2), the transitional set-off is limited to 25% of the tax payable on total income for the relevant year, subject to the original fifteen-year limit. Separate rules govern foreign companies.

Relevant statutory definitions

Book profit: Profit determined under Section 206(1)(c) and (d) after specified statutory additions and reductions.

Minimum alternate tax (MAT): Tax calculated on book profit at the rate applicable under Section 206(1)(b).

Adjusted total income: The income base computed under Section 206(2) for alternate minimum tax purposes.

International Financial Services Centre: Defined in Section 2(61) by reference to Section 2(q) of the Special Economic Zones Act, 2005.

Tax year: The period defined in Section 3 of the Income-tax Act, 2025.

Frequently asked questions

Is MAT 15% or 14% under the amended Act?

For companies subject to the general MAT rate, it is 14% under Section 206(1)(b)(ii), as amended by the Finance Act, 2026.

What is the MAT rate for a qualifying IFSC unit?

9% of book profit where the statutory IFSC and convertible-foreign-exchange requirements are met.

Does every company pay MAT?

No. MAT generally operates as a minimum-tax comparison and is subject to exclusions, including specified companies using concessional tax options.

Can unused MAT credit from the old Act still be used?

Section 206 contains transitional provisions for eligible credits carried forward as of 31 March 2026, with category-specific restrictions and time limits.

Official statutory source

Income-tax Act, 2025, as amended by the Finance Act, 2026 (official consolidated PDF).

Updated: 11 November 2026. This article is an explanatory guide; the enacted text controls in case of any difference.