Minimum Alternate Tax (MAT) is a way of making companies pay minimum amount of tax.
It is applicable to all companies except those engaged in infrastructure and power sectors.
Income arising from free trade zones, charitable activities, investments by venture capital companies are also excluded from the purview of MAT.
However, foreign companies with income sources in India are liable under MAT.
For example, book profit before depreciation of a company is Rs. 7 lakh. After claiming depreciation and other exemptions, gross taxable income comes to Rs. 4 lakh. The income tax applicable Rs. 1.2 lakh at a rate of 30%. However, MAT would be Rs. 1.29 lakh (Rs. 7 lakh at 18.5%).
The MAT paid can be carried forward and set-off (adjustment) against regular tax payable during the subsequent five-year period subject to certain conditions.