A founder shows me a P&L with ₹4.2 crore of profit before tax and a computation that lands on nil taxable income. Accelerated depreciation, a Section 35 weighted deduction, brought-forward business losses, a Section 80-IA claim on a captive power unit — every line is legitimate. The CA has done nothing wrong. Then the intimation under Section 143(1) arrives with a demand for roughly ₹63 lakh plus interest, and nobody in the room can explain where it came from.

It came from Section 115JB. Minimum Alternate Tax does not care that your taxable income is nil. It runs a parallel computation on the profit shown in your audited profit and loss account, and if the tax on that number exceeds your tax under normal provisions, the higher figure becomes your liability. This is the single most common reason a profitable-looking Indian private limited company gets a tax demand it did not budget for.

What the law actually requires

Section 115JB of the Income-tax Act, 1961 is the operative provision. Sub-section (1) states that where the income tax payable by a company on its total income computed under the Act is less than a specified percentage of its book profit, that percentage of book profit shall be deemed to be the total income and taxed accordingly.

The rate. MAT has been levied at 15% of book profit (plus applicable surcharge and health and education cess) since the Taxation Laws (Amendment) Act, 2019 reduced it from 18.5%. Following the Union Budget 2026 proposals, the rate stands at 14% of book profit with effect from 1 April 2026, applying to assessment year 2027-28 onwards. For a company being a unit of an International Financial Services Centre deriving income solely in convertible foreign exchange, the concessional MAT rate under the proviso to Section 115JB(1) is 9%.

Because surcharge and cess sit on top, the effective MAT burden for a domestic company with book profit above ₹10 crore is materially higher than the headline rate — surcharge at 12% and cess at 4% take a 15% headline rate to roughly 17.47% effective.

What "book profit" means. This is the part founders get wrong. Book profit is not your taxable income and it is not simply your PBT. Under Explanation 1 to Section 115JB(2), you start with the net profit as shown in the statement of profit and loss prepared under Schedule III of the Companies Act, 2013, then apply a defined set of add-backs and deductions.

Amounts to be added back (Explanation 1, clauses (a) to (k)) include: income tax paid or payable and provisions for it; amounts carried to any reserve by whatever name called (other than a reserve under Section 33AC); provisions for unascertained liabilities; provisions for losses of subsidiaries; dividends paid or proposed; expenditure relatable to income exempt under Sections 10 (other than 10(38) in its historical form), 11 and 12; depreciation debited to the P&L; and the deferred tax provision.

Amounts to be deducted include: depreciation debited to the P&L excluding the depreciation attributable to revaluation of assets; the amount withdrawn from reserves if it was credited to the P&L and the reserve had earlier been added back; income exempt under Sections 10, 11 and 12; and — critically for loss-making-then-profitable startups — the lower of brought-forward book loss or unabsorbed book depreciation as per the books of account. If either is nil, no deduction is available under this clause at all. This is the trap that catches companies whose books show accumulated losses but zero unabsorbed depreciation.

Who is exempt. Section 115JB(5A) excludes income from life insurance business. More importantly for most private companies: a domestic company that has opted for the concessional regime under Section 115BAA (22%) or Section 115BAB (15% for new manufacturing) is not liable to MAT at all, by virtue of Section 115JB(5A) as amended. That exemption is one of the strongest reasons to evaluate a 115BAA election — but it comes at the cost of forfeiting most deductions and, importantly, lapsing any accumulated MAT credit.

MAT credit. Section 115JAA allows the excess of MAT paid over the normal tax liability to be carried forward as a tax credit. Sub-section (3A) permits carry-forward for fifteen assessment years immediately succeeding the assessment year in which the credit became allowable. The credit can be set off only in a year in which tax is payable under normal provisions, and only to the extent of the difference between the normal tax and the MAT for that year. No interest is payable on MAT credit.

The certification requirement. Under Section 115JB(4), every company to which the section applies must furnish a report from an accountant in Form 29B, certifying that the book profit has been computed in accordance with the section. The report must be filed one month before the due date for filing the return under Section 139(1). For a company subject to transfer pricing, the return due date is 30 November; otherwise 31 October. Form 29B is filed electronically on the e-filing portal and must be accepted by the company before the return is submitted.

Practical implications

The demand arrives as a processing adjustment, not an assessment. Because MAT is computed mechanically from figures already in your ITR-6 Schedule MAT and your audited accounts, the CPC system at Bengaluru catches the shortfall at the Section 143(1) processing stage. There is no scrutiny notice, no hearing, no opportunity to explain. You receive an intimation with a demand and a 30-day window to respond.

Interest compounds the problem. MAT liability is part of your advance tax obligation. If you did not estimate MAT when paying instalments under Section 211, you face interest under Section 234B at 1% per month on the shortfall from 1 April of the assessment year, and Section 234C at 1% per month for each instalment shortfall. On a ₹63 lakh MAT liability discovered eight months late, interest alone is roughly ₹5 lakh.

Failure to file Form 29B is a separate default. The Assessing Officer can treat the return as defective under Section 139(9), and penalty proceedings under Section 271J (₹10,000 per report) can be initiated against the accountant. In practice, the more damaging outcome is that a return processed without Form 29B routinely gets flagged, delaying refunds across subsequent years.

MAT credit is not automatic. It must be claimed in Schedule MATC of ITR-6, with the year-wise breakup of credit brought forward, set off, and carried forward. Companies that skip this schedule in a loss year effectively abandon credit that was already paid for. I have seen ₹1.4 crore of MAT credit lapse purely because Schedule MATC was left blank for three consecutive years and the trail broke.

The 115BAA interaction is one-way. If you elect Section 115BAA in Form 10-IC, your accumulated MAT credit is extinguished — it cannot be carried forward, and it cannot be refunded. CBDT Circular No. 29/2019 confirmed this. A company sitting on ₹2 crore of MAT credit that elects 115BAA to save 3 percentage points of tax may destroy more value than it creates. Model both paths before filing Form 10-IC.

MCA21 v3 makes the mismatch visible. Since MCA21 v3 introduced structured financial statement filing, the profit figures in your AOC-4 XBRL filing sit in a queryable database. The book profit you report in Form 29B should reconcile to the net profit in your AOC-4. A material unexplained gap between the profit filed with MCA and the book profit certified to the Income Tax Department is exactly the kind of inconsistency that data-matching exercises surface. Reconcile the two before either is filed.

Step-by-step: what to do

Run the parallel computation every quarter, not at year-end. Compute normal tax and MAT side by side before each advance tax instalment date (15 June, 15 September, 15 December, 15 March). Pay advance tax on the higher of the two.
Build a standing book profit worksheet. Start from Schedule III net profit. Add back: current tax, deferred tax, provision for unascertained liabilities, transfers to reserves, proposed dividend, and depreciation. Deduct: depreciation net of revaluation, exempt income under Sections 10/11/12, and the lower of brought-forward book loss or unabsorbed book depreciation. Keep the worksheet in the audit file — the AO will ask for it.
Check whether your brought-forward book loss OR unabsorbed depreciation is nil. If either is zero, that deduction is unavailable in full. Many startups discover this in their first profitable year.
Model Section 115BAA against your MAT credit balance before electing. Compute the present value of your MAT credit utilisation over the next five years under the normal regime, and compare it against the tax saved under 115BAA. Only elect if 115BAA wins on a net present value basis. Remember the election is irrevocable.
Obtain Form 29B one month before the return due date. For a non-TP company filing by 31 October, Form 29B must be uploaded and accepted by 30 September. Diarise it separately from the tax audit report.
Complete Schedule MAT and Schedule MATC in ITR-6 every single year — including loss years where no credit is set off. The carry-forward trail must be unbroken.
Reconcile book profit to the AOC-4 net profit figure before filing either. Document any reconciling item.

FAQ

Does MAT apply to a company with nil turnover?
Yes, if it has book profit. A shell or holding company with dividend or interest income and minimal expenses can have positive book profit and therefore MAT liability, even with nil operating revenue.

Can MAT credit be refunded in cash?
No. Section 115JAA permits set-off only against future tax payable under normal provisions. Unused credit at the end of fifteen assessment years simply lapses.

Does MAT apply to an LLP?
No. LLPs are covered by Alternate Minimum Tax under Section 115JC at 18.5% of adjusted total income, which is a different computation with a different base. MAT under 115JB applies only to companies.

If I opt for Section 115BAA mid-way, do I get my MAT credit back?
No. CBDT Circular No. 29/2019 confirms the credit lapses on election and there is no refund mechanism. This is the single most expensive mistake in the 115BAA decision.

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