MAT Credit accumulated till 31-03-2026 Transition - when new regime to be Opted?

[MUKUNDA SHIVA]

Is it mandatory to opt for section 115BAA (206 of new act) in FY 2026-27 itself to preserve the MAT credit?

Or, if a company continues under the old regime in FY 2026-27 and shifts to section 115BAA (206 of new act) in a later year, will the MAT credit (accumulated up to 31 March 2026) still be available for utilisation at that point (within the 15-year limit)? Or would it lapse if the option is not exercised in FY 2026-27?

[YAGAY andSUN]

Section 115BAA of the Income-tax Act, 1961 provides an optional concessional tax regime for domestic companies, subject to the condition that specified exemptions, deductions, and incentives are foregone. A consequential implication of opting for Section 115BAA is contained in Section 115JAA, which governs utilisation of MAT credit.

As per the statutory framework, once a company exercises the option under Section 115BAA, it becomes ineligible to utilise any brought forward MAT credit. There is no provision for carry forward or set-off of MAT credit after shifting to the concessional regime. Effectively, the unutilised MAT credit lapses in the year in which the option under Section 115BAA is exercised.

However, there is no legal requirement mandating that the option under Section 115BAA must be exercised in FY 2026-27 (or any specific year) to preserve MAT credit. A company may continue under the normal provisions (old regime) and utilise MAT credit in accordance with Section 115JAA (within the prescribed 15-year carry forward period).

Accordingly, if a company defers opting for Section 115BAA, the MAT credit accumulated up to 31 March 2026 will continue to remain available for set-off against normal tax liability in subsequent years (subject to the 15-year limitation), so long as the company remains under the regular tax regime.

Conversely, if the company opts for Section 115BAA in a later year, any unutilised MAT credit as on the date of such option will lapse permanently, irrespective of the balance period available under the 15-year carry forward rule.

In essence, the timing of exercising the option under Section 115BAA should be commercially evaluated:

• If substantial MAT credit remains, it is generally advisable to defer the option until such credit is substantially utilised;
• There is no statutory forfeiture merely because the option is not exercised in FY 2026-27;
• The forfeiture arises only upon exercising the option under Section 115BAA, not by deferral.

Therefore, MAT credit does not lapse due to non-exercise of Section 115BAA in FY 2026-27, but it will lapse in the year the option is eventually exercised.

AI Summary

MAT credit utilisation under section 115BAA lapses only on opting into the concessional regime, not by delaying the switch. Optional taxation under section 115BAA does not have to be exercised in a particular year to preserve MAT credit. A company may continue under the regular tax regime and utilise brought forward MAT credit under section 115JAA within the 15-year carry forward period. Once section 115BAA is exercised, any unutilised MAT credit on that date lapses and cannot be carried forward or set off thereafter.