Budget 2026: Companies Allowed Limited MAT Credit Set-Off in New Tax Regime
Companies shifting to the new corporate tax regime will be allowed limited set-off of brought-forward MAT credit, with MAT becoming a final tax from April 2026.
The Union Budget for the Financial Year 2026–27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026), with the Government announcing key changes to the Minimum Alternate Tax (MAT) framework aimed at encouraging companies to transition to the new corporate tax regime. Under the proposals, companies shifting to the new regime will...
The Union Budget for the Financial Year 2026–27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026), with the Government announcing key changes to the Minimum Alternate Tax (MAT) framework aimed at encouraging companies to transition to the new corporate tax regime.
Under the proposals, companies shifting to the new regime will be allowed a limited set-off of brought-forward MAT credit, restricted to one-fourth of the tax liability in a given year. The Finance Minister said this provision would strike a balance between providing relief to companies with accumulated MAT credit and streamlining the tax system.
In a significant move, Sitharaman announced that MAT will become a final tax from April 1, 2026, meaning no further accumulation of MAT credit will be permitted beyond this date. To align with this change, the MAT rate will be reduced to 14 per cent from the current 15 per cent, offering modest relief to companies that continue to fall under the MAT framework.
However, MAT credit accumulated up to March 30, 2026, will remain eligible for set-off under the revised rules, subject to the annual cap. Officials said this transitional arrangement is intended to address concerns raised by industry over stranded MAT credit while nudging firms towards the concessional tax regime introduced in 2019.
The government has been steadily encouraging corporates to opt for the new tax regime, which offers lower headline tax rates but fewer exemptions. Despite this, a significant number of companies have continued under the old regime due to accumulated MAT credit and other incentives.
The changes announced in Budget 2026 signal a clear policy intent to eventually phase down the relevance of MAT, simplify corporate taxation and improve certainty. While the limited set-off may not fully neutralise legacy MAT balances, it provides a defined exit path for companies considering the shift.
The move is part of a broader set of measures in Budget 2026 aimed at simplifying tax compliance, reducing litigation and improving India’s investment climate, as the government seeks to boost private investment and sustain economic growth.
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