Book Profit

Book profit is a statutory measure of profit under India's income-tax law that begins with accounting profit and then applies prescribed adjustments. Its best-known use is Minimum Alternate Tax (MAT), so that companies reporting healthy accounting profits but paying little or no tax because of exemptions and incentives still contribute a minimum amount.

Legal basis

For Tax Year 2026-27, MAT is governed by Section 206 of the Income-tax Act, 2025, which replaced the Income-tax Act, 1961 (and its Section 115JB) from 1 April 2026. Book profit starts from the net profit in the statement of profit and loss prepared under Schedule III of the Companies Act, 2013, then increased or decreased by specified items. A separate meaning survives under Section 35(e) (formerly Section 40(b)), which caps deductible remuneration payable to working partners in a firm or LLP.

How it is computed for MAT

Typical adjustments to the net profit include:

• Add back: the income-tax provision, amounts carried to reserves, provisions for unascertained liabilities, dividends paid or proposed, and expenditure relating to income exempt from tax.
• Deduct: amounts withdrawn from reserves and credited to the accounts, exempt income, and the lower of brought-forward book loss or unabsorbed depreciation as per the books.

Rate and credit

MAT is levied at 15% of book profit (plus applicable surcharge and cess), with a concessional 9% rate for units in an International Financial Services Centre. Where MAT exceeds normal tax, the excess becomes MAT credit under Section 208 and can be carried forward for up to 15 tax years. Companies opting for the concessional regimes under Section 200 or 201 (formerly 115BAA/115BAB) are outside MAT altogether.