[Economy Q] Minimum Alternative Tax (MAT) its provisions in DTC Question from via email Explain Minimum Alternate Tax (MAT) and its provisions under the new Direct tax code (DTC) Ans First we need to understand why Government takes MAT? Zero Tax companies Example, A company's book-profit is 10 lakh Rupees. Then they use some creative accounting methods like depreciation, donations etc. to claim deductions and finally their 'taxable' income is reduced to almost zero. e.g. in 2009 during the recession time, Government of India launched a scheme to give 50% depreciation to commercial vehicles. (with assumption that it'll boost the vehicle demand and help the automobile industry to come out of the recession.) So the company buys a truck, for 20 lakh rupees on loan. Their deduction on first year= 50% of 20 lakh rupees= 10 lakh rupees. Their taxable income = book profit minus deductions =10 minus 10=0. So they don't have to pay any tax on their profit at all! Other tricks involve donating 5,000 rupees to some religious institution run by con-man and getting donation-receipt of 5 lakh rupees. And claiming deduction! and so on.. These companies, making profit but having zero taxable income, are known as 'Zero tax companies' Minimum Alternative Tax (MAT) Around 1997, Indian Government realized above large-scale problem of creative accounting and tax-deduction. So it came up with MAT (Minimum alternative tax). So if company's taxable income is less than 30% of its book profit, then it'll have to pay MAT, which is around 15% of the book profit. Therefore, now even if above zero-tax company escapes the regular taxes, it still has to pay 1.5 lakh rupees in MAT.