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May 27, 2021

Know all about Alternate Minimum Tax (AMT) for Individuals, HUF, firms and LLP

by Mahesh Mara in Income Tax

Know all about Alternate Minimum Tax (AMT) for Individuals, HUF, firms and LLP

In order to encourage various industries Government has introduced various profit linked deductions and incentives. Due to this move the assesses who are eligible to claim such deductions/incentives would end up paying zero tax or marginal tax even though they are capable of paying normal tax. 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. Minimum tax was initially introduced for companies in the name of ‘Minimum Alternate Tax (MAT)’ to collect minimum tax from the companies who are claiming profit-linked deductions 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 rate of tax is levied on the adjusted income.

Finance Act, 2011 introduced Alternative Minimum Tax (AMT), introduced for non-corporate taxpayers. However, applicability, manner of computation of adjusted income, exemption, reporting requirement etc are different compared to MAT. In this article we will know all about Alternate minimum tax.

To whom AMT is applicable?

As per section 115JC, Alternate Minimum Tax is applicable to following taxpayers:

a. All non-corporate taxpayers; and

b. Taxpayers who have claimed deduction under:

  • Chapter VI-A under the heading “C. i.e. Deductions in respect of certain incomes’ – These deductions are under Section 80H to 80RRB except section 80P.
  • 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 Financial Year.

To whom AMT is not applicable?

As per section 115JC, Alternate Minimum Tax provision is 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 assesses.

What is adjusted total income and how to calculate it?

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

ParticularsAmount (in Rs)
(A)Taxable incomeXXXXX
(B)Add: Deduction claimed if any under Chapter VI-A from 80H to 80RRB except 80PXXXXX
(C)Deduction claimed if any under Section 10AAXXXXX
(D)Deduction claimed if any under Section 35AD reduced by regular depreciation allowedXXXXX
(E)Adjusted total income (A)+(B)+(C)+(D)XXXXX
(F)AMT – 18.5% of (E)XXXXX

What is the rate of AMT?

Where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of 18.5%.

Note: Where the person referred to therein, is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, the rate of AMT will be 9%.

What is AMT credit?

AMT was introduced to collect tax from assesses who are paying nil or negligible tax, it was also with the intention of having consistent flow of tax to public fund. While minimum tax is being levied during the Financial Year wherein normal tax is lower than AMT, in subsequent Financial Years 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 Financial Years. This concept is called AMT Credit.

AMT Credit is allowed to be carried forward for only upto 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 income tax department, AMT credit will also change accordingly.

For Instance,

Mr X is an Individual assessee and has total income of Rs 40 lakhs and has claimed deduction under section35AD of Rs 30 lakhs in AY 2021-22. Let us calculate the AMT.

As Mr. X is an individual whose taxable income is more than 20 Lakhs provision of AMT shall apply.

Normal Tax Calculation:

ParticularAmount
Total Income40,00,000
Less Deduction u/s 35AD30,00,000
Taxable Income10,00,000
Tax Payable as per slab rates1,12,500
Add: Health and education cess @ 4%4,500
Total Tax Payable1,17,000

AMT Calculation:

Adjusted Total Income:

ParticularAmount
Taxable Income under normal Tax Provisions:10,00,000
Add: Deduction u/s 35AD30,00,000
Adjusted Total Income40,00,000
AMT at 18.5%7,62,000
Add: Health and education cess @ 4%30,480
Total Tax Payable7,92,480

Since AMT payable is more than the Normal Tax Payable, the assessee will pay tax of Rs 7,62,480 lakhs. However, he will get tax credit of Rs 6,75,480 Lakhs (7,62,480 -1,17,000) which can be carried forward and set off upto next 15 Assessment Years i.e. till 2036-37.

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