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AMT - Know about Alternative


Minimum Tax Applicability,
Exemptions, Credits & more
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The Government has introduced various profit linked deductions and incentives
in order to encourage investment in various industries. Taxpayers who are
eligible to claim such deductions/incentives would become zero tax companies or
may end up paying marginal tax though they are capable of paying normal tax.
The Government also needs regular / consistent inflow of tax which is one of its
major revenues to fund various expenses for the welfare of the country. Hence,
ensuring not to completely disrupt the intention of introducing such
incentives/deductions by taking it away indirectly and also to ensure levy of tax
on such zero tax/marginal tax companies, concept of Minimum Tax was
introduced. This was initially introduced for companies in the name of
‘Minimum Alternate Tax (MAT)’ to collect minimum tax to be paid by companies
who are claiming profit linked deductions in such financial years (FYs) wherein
normal tax payable is lower than MAT. Adjusted total income will be computed
for MAT by adding and deducting certain specified items. Then, taxed at a rate
lower than normal rate of tax is levied on the adjusted income. However, credit
for MAT paid in earlier years was allowed to be carried forward and set off in
subsequent year wherein normal tax payable was higher than MAT.

Alternative Minimum Tax (AMT), introduced for non-corporate taxpayers works


on similar principles. However, applicability, manner of computation of adjusted
income, exemption, reporting requirement etc are different compared to MAT.
Alternative Minimum Tax – Basics
As it is evident from the name, AMT is a minimum tax that is leviable alternative
to normal tax. Rate of AMT is 18.5% (plus applicable surcharge and cess). AMT is
a tax levied on ‘adjusted total income’ in a FY wherein tax on normal income is
lower than AMT on Adjusted total income. So, irrespective of normal tax, AMT
has to be paid by taxpayers to whom AMT provisions apply.

Applicability of AMT
As already mentioned, initially the concept of minimum tax was introduced for
companies and progressively made applicable to non-corporate taxpayers.
Finance Act, 2011 introduced AMT on Limited Liability Partnership (LLP) and
Finance Act 2012 amended the provisions as it stands today. Accordingly, AMT
provisions are applicable to following taxpayers:

All non-corporate taxpayers; and

Taxpayers who has claimed deduction under:

Chapter VI-A under the heading “C. — Deductions in respect of certain incomes’
– These deductions are under Section 80H to 80RRB provided in respect of
profits and gains of specific industries such as hotel business, small scale
industrial undertaking, housing projects, export business, infrastructure
development etc. However, deduction under Section  80P which provides
deduction to co-operative societies is excluded for this purpose; or

Deduction under Section 35AD – While capital expenditure in assets usually


qualify for depreciation year on year, under this Section 100% deduction is
allowed on capital expenditure incurred for specified business such as
operation of cold chain facility, fertilizer production etc; or
Profit linked deduction under Section 10AA – Deduction of profit varying
from 100% to 50% is provided to units in Special Economic Zones (SEZs).

Based on the above, it can be concluded that AMT provisions are applicable only
to those non-corporate taxpayers having income under the head ‘Profits or Gains
of Business or Profession’.

Further, as mentioned above AMT provisions are applicable only when normal
tax payable is lower than AMT in any FY.

Exemption from Applicability of AMT


AMT provisions are not applicable to an individual, Hindu Undivided Family
(HUF), Association of Persons (AOP), Body of Individuals (BOI) and artificial
juridical person whose adjusted total income does not exceed Rs 20,00,000.

Therefore, this exemption based on monetary threshold of adjusted total income


is not applicable to LLPs, partnership firms and other non-corporate assessees.

Calculation of Adjusted Total Income


Adjusted total income and AMT is arrived in the following manner:

Amount (in
Particulars
Rs)
Taxable income (A) XXXXX
Add: Deduction claimed if any under Chapter VI-A from 80H to
XXXXX
80RRB except 80P (B)
Deduction claimed if any under Section 10AA (C) XXXXX
Deduction claimed if any under Section 35AD reduced by regular
XXXXX
depreciation allowed (D)
Adjusted total income (E) = (A)+(B)+(C)+(D) XXXXX
AMT – 18.5% of (E) XXXXX

Computation of Tax Liability When AMT


Provisions are Applicable
Amount (in
Particulars
Rs)
Tax liability computed as per normal provisions of the Income-
XXXX
tax Act – normal tax liability
AMT computed at 18.5% (plus applicable surcharge and cess) on
XXXX
adjusted total income
Higher of the
Tax liability of taxpayer
above

Though AMT was introduced to collect tax from zero tax companies, it was also
with the intention of having consistent flow of tax to public fund. Therefore,
while minimum tax is being levied in an FY wherein normal tax is lower than
AMT, in subsequent FYs wherein AMT is lower than normal tax, AMT paid
earlier is allowed to be carried forward and reduced against normal tax to the
extent of the difference between normal tax and AMT. Balance if any after such
set off can be carried forward to subsequent FYs. This concept is called AMT
Credit. However, AMT Credit is not allowed to be carried forward for infinity but
only upto 10 FYs succeeding the FY in which such AMT is paid.

In case of any change in normal tax due to any order passed by income tax
department, AMT credit will also change accordingly.

Further, if taxpayer has any foreign tax credit (tax paid in foreign countries with
which India has bilateral or unilateral tax agreement) to be claimed against AMT,
any FTC in excess of AMT shall be ignored.
Reporting Requirement
All taxpayers to whom AMT provisions are applicable is required to obtain a
report from Chartered Accountant certifying that adjusted total income and
AMT have been computed as per provisions of Income-tax Act, in Form No. 29C
and furnish the report on or before the due date for filing the return of income.
Report can be filed electronically along with return of income.

Screenshot of Form No. 29C is given below:


Illustration
Illustration (assuming status of taxpayer to be individual)

Amount (in Rs)

Particulars FY 1 FY 2
Taxable income (A) 19,30,000 20,50,000
Add: Deduction claimed if any under Chapter VI-A
1,00,000 Nil
from 80H to 80RRB except 80P (B)
Deduction claimed if any under Section 10AA (C) 75,000 25,000
Deduction claimed if any under Section 35AD reduced
4,50,000 Nil
by regular depreciation allowed (D)
Adjusted total income (E) = (A)+(B)+(C)+(D) 25,55,000 20,75,000
Comparison of normal tax and AMT
AMT – (18.5% of (E) plus education cess @ 3%) (F) 4,86,855 3,95,391
Tax liability computed as per normal provisions of the
Income-tax Act – normal tax liability as per applicable 4,03,245 4,40,325
slab for individual including education cess (G)
4,86,855

(AMT being the


tax liability,
Tax liability of taxpayer – (H) = Higher of (F) and (G) 4,40,325
AMT can be c/f
to next FY for
set off if any)

Less: MAT Credit b/f (restricted to excess of normal


tax over AMT) As only Rs 56,450 (Rs 4,40,325-3,95,391)
is claimed in FY 2 out of total AMT credit of Rs Nil 44,934
4,86,855 balance unclaimed AMT credit of Rs 4,41,922
can be carried forward for set off till FY 11
Final tax liability of taxpayer (rounded off) 4,86,860 3,95,391

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