In parallel, the Budget 2026 has also excluded the applicability of MAT provisions to non-resident opting for presumptive taxation with respect to income from the business of providing services or technology for setting up an electronics manufacturing facility in India
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The Union Budget 2026-27 announced by Finance Minister on February 1, 2026, proposes a fundamental redesign of the MAT framework, shifting it away from an open-ended credit based mechanism towards a final tax model, while simultaneously incentivising migration to the new tax regime.
Under the old tax regime, one of the most significant proposals is to treat MAT as a final tax, with effect from April 1, 2026. Under the revised framework:
– MAT paid on or after this date will not generate any further MAT credit, and
– The current cycle of accumulation and carry forward of MAT credit will cease.
To align this transition with the broader objective of lowering corporate tax incidence, the MAT rate is proposed to be reduced from 15 per cent to 14 per cent. This reduction partially offsets the removal of future credit entitlement and signals a move towards simplifying corporate tax computation.
Recognizing that companies have accumulated MAT credit under the old tax regime, the Budget 2026 provides transitional incentive to new tax regime, which anyway is not subject to MAT:
– Accumulated MAT credit will remain available for set-off up to one-fourth (25 per cent) of the tax liability under the new tax regime.
– However, the utilisation of such brought-forward credit will be linked exclusively to companies opting for the new tax regime.
This design reflects a clear policy intent i.e., MAT credit is no longer intended to coexist indefinitely with the old tax regime but is being used as a migration tool to accelerate adoption of the concessional tax framework.
In parallel, the Budget 2026 has also excluded the applicability of MAT provisions to non-resident opting for presumptive taxation with respect to income from the business of providing services or technology for setting up an electronics manufacturing facility in India.
From an impact perspective, companies opting for the new tax regime will be able to utilize MAT credit up to 25 per cent of their tax liability in a given year, enabling gradual monetisation of accumulated MAT balances. This mechanism is expected to improve cash flows, lower effective tax outgo during the transition period and enhance predictability in tax planning.
Companies that are capital-intensive, incentive-driven and currently loss-making, and which continue to remain under the old tax regime, may be adversely impacted. Where such companies turn profitable in future years, MAT paid post April 1, 2026 will constitute a final tax, with no entitlement to MAT credit, potentially resulting in a permanent tax cost.
Accordingly, while the revised MAT framework improves certainty and cash-flow efficiency for companies transitioning to the new tax regime, it also underscores the need for capital-intensive businesses to carefully reassess regime choice, as MAT paid going forward will no longer function as a recoverable prepayment of tax.
In nutshell, companies will need to carefully evaluate the timing and financial implications of migrating to the new tax regime. However, the direction of travel is unmistakable. The recalibration of MAT underscores a policy preference for certainty over complexity, aligning tax design more closely with growth and investment objectives.
Rohinton Sidhwa is a Partner at Deloitte India
Harsh Shah is a Director at Deloitte India
Published on February 1, 2026
