NISM Professor

Minimum Alternate Tax

Also written MAT · Minimum Alternate Tax (MAT)

A floor tax on a company's book profits under Section 115JB, payable when it exceeds tax computed the normal way — which catches corporate investors receiving Category III AIF distributions.

In plain language

A company can be highly profitable in its accounts and pay almost no tax, because the Income Tax Act allows deductions and exemptions the accountant does not. MAT exists to stop that.

It works as a floor. Compute tax the normal way. Compute it again as a percentage of book profits. Pay whichever is higher.

For Series XIX-B the relevance is one step removed: the Category III AIF itself is taxed at MMR, but corporate beneficiaries of the fund are subject to Section 115JB on the distributions they receive. A corporate investor can therefore pay an additional layer of tax on money the fund has already been taxed on.

How it works

Two rates matter in this paper.

The general rate is 18.5% of book profits, plus applicable surcharge and health and education cess. A corporate beneficiary is liable for MAT where tax at 18.5% of book profits exceeds the tax computed under the ordinary provisions of the Act.

For a unit of a Category III AIF located in an IFSC, the rate is 9% — half the general rate — provided the unit derives its income solely in convertible foreign exchange. That halving sits alongside the other IFSC concessions: a 100% deduction from gross total income under Section 80LA for any 10 consecutive years out of 15, beginning with the year the fund obtained permission to operate; exemption from STT on transactions on an IFSC exchange; and, under the amendment to Section 115JEE, outright exemption from Alternate Minimum Tax for Category III AIFs in an IFSC organised as trusts or LLPs.

Note the pair carefully. MAT applies to companies under 115JB. AMT applies to non-corporate assessees, and it is AMT that the IFSC exemption removes.

The formula

MAT liability = Book profits × 18.5%    (plus surcharge and cess)
                → payable only if greater than tax under the normal provisions

IFSC unit of a Category III AIF, income solely in convertible foreign exchange:
MAT liability = Book profits × 9%

A worked example

A domestic company holds units in a Category III AIF. For the year its accounts show book profits of Rs 40 crore, while tax computed under the normal provisions — after depreciation allowances, set-offs and exempt income — comes to Rs 5.20 crore.

Normal computation                        Rs 5,20,00,000
MAT at 18.5% × Rs 40 crore                Rs 7,40,00,000
                                          ---------------
Higher of the two → MAT applies           Rs 7,40,00,000
Additional tax caused by 115JB            Rs 2,20,00,000

Add surcharge at 7% (total income above Rs 1 crore but not above Rs 10 crore) and cess at 4%:

MAT                    Rs 7,40,00,000
Surcharge  7%          Rs   51,80,000
                       --------------
                       Rs 7,91,80,000
Cess       4%          Rs   31,67,200
                       --------------
Total                  Rs 8,23,47,200

Now move the fund to an IFSC. The same book profits, in a unit deriving income solely in convertible foreign exchange:

MAT at 9% × Rs 40 crore = Rs 3,60,00,000

Below the Rs 5.20 crore normal computation, so MAT does not bite at all — the normal figure is paid. The jurisdiction choice is worth Rs 2.20 crore of tax on Rs 40 crore of book profits, before Section 80LA's 100% deduction is even considered.

Why NISM asks about it

Chapter 9 (Taxation) raises MAT twice: once at section 9.5, on distributions and redemptions, where corporate beneficiaries are flagged as subject to Section 115JB; and again at section 9.7, on Category III AIFs in an IFSC, where the 9% concessional rate sits in the list of IFSC benefits alongside Section 80LA and the STT exemption. Questions are usually recognition questions — which rate applies to an IFSC unit, which assessees MAT reaches, which statute exempts IFSC trusts and LLPs from AMT (Section 115JEE) rather than MAT.

Common exam traps

  • The rate depends on which paper you are sitting, and the workbooks disagree. This page is shared by several series, so check yours: Series XIX-B states 18.5%, XV and XIX-C state 15%, and XIX-D and XIX-E state 14% (Finance Act 2026, with effect from 1 April 2026). The statutory rate under section 115JB was cut to 15% in 2019 and revised again since. The paper marks its own workbook — answer the figure your syllabus states, and do not carry a rate across from another series.
  • MAT is not a tax on the AIF. The Category III AIF pays at MMR; MAT reaches the corporate beneficiary on what it receives.
  • MAT ≠ AMT. MAT (115JB) applies to companies; Alternate Minimum Tax applies to non-corporates, and it is AMT that Section 115JEE exempts for IFSC Category III AIFs organised as trusts or LLPs.
  • The 9% IFSC rate is conditional on the unit deriving its income solely in convertible foreign exchange. Mixed-currency income does not qualify.
  • MAT is a floor, not an addition. You pay the higher of the two computations, not both.
  • Book profits are not taxable income. MAT deliberately starts from the accounts, which is the whole point of the section.

Where this is taught

Free preparation for NISM Series XIX-D

Related terms

← All terms
Something look wrong? Report it