Meaning and Calculation of Book Profit for Minimum Alternate Tax

Meaning of Book Profit Under Section 206

Section 206(1)(c) of the Income-tax Act, 2025 defines book profit for MAT purposes. Broadly, it starts with the net profit shown in the statement of profit and loss for the relevant tax year, prepared in the manner required by section 206, and then makes only the statutory increases, reductions and further adjustments prescribed by that section.

Book profit is therefore not necessarily the same as accounting profit and is not the same as taxable income computed under the normal income-tax provisions. It is a separate statutory computation used for MAT.

Basic Calculation of Book Profit

The complete statutory text should be checked because section 206 contains detailed adjustments for particular transactions and classes of companies. The current Income Tax Department MAT and AMT guidance provides an official overview.

Principal Additions to Net Profit

Section 206 requires specified items to be added back when the statutory conditions are met. Important examples include:

• Income-tax paid or payable and provision for income-tax, where debited to the statement of profit and loss, including the tax-related amounts covered by the section.
• Amounts carried to reserves, by whatever name called, where debited to the statement of profit and loss.
• Provisions for liabilities other than ascertained liabilities.
• Provision for losses of subsidiary companies.
• Dividends paid or proposed, where debited.
• Specified expenditure relating to income that receives the treatment described in section 206.
• Depreciation debited to the statement of profit and loss, followed by the specific statutory depreciation adjustment allowed in the reduction provisions.
• Deferred tax and provision for deferred tax, where debited.
• Provision for diminution in the value of an asset, where covered by the section.
• Specified amounts relating to revaluation reserves and disposal or retirement of revalued assets.

Principal Reductions From Adjusted Net Profit

Subject to the precise conditions in section 206, the computation can include reductions such as:

• Qualifying amounts withdrawn from reserves or provisions and credited to the statement of profit and loss, where the statutory conditions are satisfied.
• Specified income credited to the statement of profit and loss that receives the treatment prescribed by section 206.
• Depreciation debited to the statement of profit and loss, excluding depreciation attributable to revaluation of assets, as provided in the section.
• Qualifying amounts withdrawn from a revaluation reserve and credited to the statement of profit and loss, within the statutory limit.
• Deferred tax credited to the statement of profit and loss.
• Loss brought forward, excluding depreciation, or unabsorbed depreciation, whichever is less, as per books, subject to the conditions and exceptions in section 206.

The old article referred to exemptions and provisions under the Income-tax Act, 1961 that have since been changed, renumbered or superseded. Current computations should use section 206 of the Income-tax Act, 2025 and the amendments applicable to the relevant tax year.

How Minimum Alternate Tax Is Determined

For a company to which MAT applies, two computations are compared: tax under the normal provisions and MAT on book profit. If the normal income-tax liability is lower than MAT, section 206 treats book profit as total income for the purpose of the provision and the company pays MAT.

From April 1, 2026, the standard MAT rate under section 206 is 14% of book profit, with applicable surcharge and health and education cess added as required. The Finance Act, 2026 also changed the MAT-credit framework. New MAT paid under the old corporate regime is generally final tax rather than generating fresh MAT credit, while brought-forward credit accumulated under the earlier law is governed by the transition rules in the amended section.

MAT does not apply in every corporate case. Section 206 contains exclusions, including provisions relevant to companies that have exercised specified concessional corporate-tax options, life-insurance income and other categories. Eligibility should be checked before making the computation.

Section 115JB and Transition to the Income-tax Act, 2025

For matters governed by the Income-tax Act, 1961, MAT was principally dealt with by section 115JB and MAT credit by section 115JAA. The Income-tax Act, 2025 consolidates MAT and related minimum-tax provisions in section 206.

The Income-tax Act, 2025 came into force on April 1, 2026. Its repeal and savings provisions preserve the earlier Act for specified earlier tax years and proceedings. Accordingly, a company computing MAT for an earlier year should apply the law governing that year rather than automatically applying the current section 206 computation.