The proposed changes to the Minimum Alternate Tax (MAT) regime, announced in the Union Budget for FY27, will significantly impact companies in capital-intensive sectors such as infrastructure, Special Economic Zone (SEZ) units and tax-holiday startups, analysts said. Electronics manufacturing units, power and renewables and automobile firms will also require to modify their tax planning.
The government proposed a major overhaul of MAT to simplify the corporate tax structure and encourage companies to shift to the concessional 22% corporate tax regime.
The key changes include reducing the MAT rate from 15% to 14% on book profits, treating MAT as a final tax under the old regime with no new credit accumulation from April 1, 2026, and restricting set-off of existing MAT credits (accumulated up to March 31, 2026) to 25% of tax liability per year only for companies transitioning to the new regime.
An tax expert said the change is most consequential for sectors such as electronics manufacturing, power and renewables, and automobiles—industries that typically show high book profits but low normal tax due to depreciation and historic incentives.
“Start-ups, SEZ-legacy entities, and companies claiming specified deductions with large MAT credit balances now face a strategic choice: continue under the old regime and treat MAT as a real cost, or migrate to the concessional regime and utilise only up to 25% of accumulated MAT credit each year,” he said.
What do consultancies say?
Another tax expert, stated that businesses in manufacturing, power & renewable energy, infrastructure, SEZ/export units, and startups claiming tax holidays or accelerated depreciation would be impacted, potentially facing final tax liability even during holiday periods. “Past MAT credits could become a net loss if they lapse before utilization,” he said.
With no new MAT credits from 2026-27, MAT becomes a permanent cost under the old regime rather than a temporary cash-flow timing difference, experts said. The 25% annual cap on MAT credit set-off after switching to the concessional regime influences decisions, particularly in incentive-heavy sectors.
He said incentive-heavy sectors such as infrastructure and renewables, with substantial accumulated MAT credit and depressed normal tax (due to high depreciation/tax shields), may run staggered migration or entity-by-entity moves to optimise cash taxes, rather than an immediate, group-wide switch.
Another tax expert, stated that companies with large MAT credit balances must carefully assess whether the loss of future tax incentives under the old regime is outweighed by the lower tax rate and limited MAT credit set-off in the new regime.
“The decision to stay in the old regime or transition to the new concessional regime will depend on a detailed analysis of projected tax liability considering the tax holiday incentives and additional tax depreciation under the existing MAT regime versus the benefits of the concessional tax regime,” he said.
Another tax expert, said that businesses must weigh the standard 22% tax on taxable income (plus surcharge and cess) against the 14% MAT levied on book profits—together with the loss of any accumulated MAT credit—on the other side of the scale.
Tax experts highlight MAT exemptions
Tax experts also highlighted that MAT exemptions for non-residents under presumptive taxation enhance India’s FDI appeal by providing tax certainty. He said the proposed MAT exemption will bring electronic manufacturing support services at par with other specified businesses operating under the presumptive taxation regime and reinforce the simplicity and predictability that presumptive taxation is designed to offer.
For eligible non-resident taxpayers, the change is expected to reduce the effective tax rate on gross receipts to below 10%, he said.
