In a key change to the Minimum Alternate Tax (MAT) regime, the Union Budget 2026 has proposed to make MAT a final tax from April 1, 2026, while also reducing the applicable rate.

As part of the Budget announcements, the finance minister stated that MAT will no longer allow carry-forward or utilisation of MAT credit from April 1, 2026. This means companies that pay MAT will not be able to set off such payments against future regular tax liabilities beyond this date.

Separately, the Budget proposed to reduce the MAT rate from 15 per cent to 14 per cent on book profits, providing some relief on the overall tax incidence for entities covered under the provision.

The announcement also indicated that non-resident Indians (NRIs) would be exempt from MAT, aligning their tax treatment with the broader changes in the regime.

The move marks a structural shift in how MAT operates, as it removes the long-standing credit mechanism that allowed firms to adjust MAT payments against future tax liabilities when their regular tax exceeded MAT in later years.

The changes are proposed to take effect from the assessment year beginning April 1, 2026, subject to legislative approval.

Sneha Pai, senior director, direct tax at Nexdigm, noted, “Given that MAT is now a final tax liability, the new tax regime of 22 per cent becomes attractive. This being the transition year from the old tax act to the Income Tax Act 2025, it will be exciting to implement these changes.”

Commenting on the broader Budget, Amisha Vora, chairperson & managing director of PL Capital, Prabhudas Lilladher, said, “The Union Budget is very, very positive and captures many key announcements. The Buyback tax has been reduced and the long-pending MAT credit issue has been addressed. “