The Income Tax Act, 1961, not only levies a tax on the income earned but also provides various deductions and exemptions from the earned income before levying tax. Some companies started taking advantage of these deductions and exemptions which led to either reduced tax liability or NIL tax liability. As a result, the number of zero tax-paying companies increased. This led to the introduction of MAT which aimed at bringing into the tax net all the zero tax companies which have huge profits, pay good dividends but do not pay tax. AMT was introduced later on.
Read More :- Minimum Alternate Tax & Alternate Minimum Tax