Join WhatsApp Channel
A good tax system should be uniform for all similar businesses. India has made a step in that direction by fixing a huge gap in the Minimum Alternate Tax (MAT) rules for non-resident companies paying tax on a presumptive basis.
To understand why this change matters, we first need to understand what MAT and Presumptive Taxation are.
MAT is a safety net ensuring that companies – even those using deductions and exemptions pay at least some minimum tax based on their book profits.
When a company pays MAT, any excess over normal tax becomes a credit, which can be carried forward up to 15 tax years and used when regular tax exceeds MAT in future years.
Presumptive taxation means the law simply presumes a fixed percentage of the business’s revenue to be profit, and tax is charged on that.
Six types of foreign businesses can opt for presumptive taxation in India: shipping companies, airline operators, mineral oil service providers, turnkey power project builders, cruise ship operators, and electronics manufacturing service providers.
Here is where it gets frustrating.
For shipping, airlines, mineral oil, and power projects, the law explicitly said MAT does not apply. They pay presumptive tax, and that’s the end of it.
But for the last two – cruise ship operators and electronics manufacturing service providers, nobody wrote that protection in. So technically, after paying presumptive tax, MAT could still show up at their door.
Same structure. Same logic. Completely different treatment.
Think of a US-based shipping company and a UAE-based cruise ship operator – both paying under the same simplified presumptive system. The shipping company was shielded from MAT. The cruise operator was not. This problem has now been solved once and for all.
What has changed from April 1, 2026, with the introduction of the Income Tax Act 2025?
Firstly, Cruise ship operators and electronics manufacturing service providers will now also be excluded from MAT, just like the other four. This includes the business of operating cruise ships and providing services or technology for setting up an electronics manufacturing facility in India to a resident company.
Secondly, the MAT is now reduced from 15% to 14% of book profits, a small but meaningful reduction that lowers the minimum tax burden for companies.
Thirdly, the rules related to MAT credit have also been tightened. Domestic companies shifting to the new tax regime can still use their old MAT credit – but only up to 25% of their tax liability, with the rest carried forward. Foreign companies can use it only when their tax as per normal provisions exceeds the minimum alternate tax, and only to the extent of that difference.
These changes together allow companies to make a smooth transition from the old tax regime to the new one, without losing what they have already paid.
Promoting a sector through policy is one thing. Backing it up with consistent tax treatment is another. India has now done both.
Disclaimer: The opinions and views expressed in this article/column are those of the author(s) and do not necessarily reflect the views or positions of South Asian Herald.
