The Government has introduced various profit linked deductions and incentives to encourage investment in various industries. Taxpayers 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 a regular/consistent inflow of tax which is one of its significant revenues to fund various expenses for the country's welfare. Hence, ensuring not to completely disrupt the intention of introducing such incentives/deductions by taking it away indirectly and providing levy of tax on such zero tax/marginal tax companies, the 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 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, tax at a rate lower than the normal tax rate 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 years 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.
AMT - Basics
As evident from the name, AMT is a minimum tax leviable alternative to normal tax. The rate of AMT is 18.5% (plus applicable surcharge and cess). AMT is a tax levied on 'adjusted total income' in an 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 apply to the following taxpayers:
All non-corporate taxpayers; and
Taxpayers who have 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 regarding profits and gains of specific industries such as hotel business and small scale industrial undertaking, housing projects, export business, infrastructure development etc. However, deduction under Section 80P, which provides removal 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 the 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, 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 the artificial juridical person whose adjusted total income does not exceed Rs 20,00,000. Therefore, this exemption based on the monetary threshold of adjusted total income is not applicable to LLPs, partnership firms and other non-corporate assessees.
Calculation of Adjusted Total Income
Particulars
Amount (in Rs.)
Taxable Income (A)
XXXXX
Add: Deduction claimed if any under Chapter VI-A from 80H to 80RRB except 80P (B)
XXXXX
Deduction claimed if any under Section 10AA (C)
XXXXX
Deduction claimed if any under Section 35AD reduced by regular depreciation allowed (D)
XXXXX
Adjusted total income (E) = (A) + (B) + (C) + (D)
XXXXX
AMT - 18.5% of (E)
XXXXX
Computation of Tax Liability when AMT Provisions are Applicable
Particulars
Amount (in Rs.)
Tax Liability computed as per normal provisions of the Income-Tax Act normal tax liability.
XXXXX
AMT computed at 18.5% (plus applicable surcharge and cess) on adjusted total income
XXXXX
Tax Liability of taxpayer
Higher of the above
AMT Credit
Though AMT was introduced to collect tax from zero tax companies, it was also with the intention of having a consistent flow of tax to the 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 cannot be carried forward for only up to 15 FYs succeeding the FY in which such AMT is paid. In case of any change in normal tax due to any order passed by the income tax department, AMT credit will also change accordingly. Further, if a 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 must 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. The report can be filed electronically along with the return of income.
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