Alternate Minimum Tax (AMT)

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Alternate Minimum Tax (AMT) – Meaning, Calculation and Exemption

The income tax act contains various provisions providing huge deductions and tax holidays. Assessees benefitting from these provisions usually end up paying marginal to no tax over a period of time causing revenue loss to the exchequer. Therefore, provisions relating to Minimum Alternate Tax u/s 115JB and Alternate Minimum Tax u/s 115JC were introduced that required these assessees to pay a certain minimum amount as tax on profits calculated as per the provisions of these sections regardless of the taxable profits of the assessee. 
While MAT is applicable for corporate assessees, AMT is applicable for non-corporate assessees. In this guide, we will be understanding AMT in detail.

What is Alternate Minimum Tax (AMT)?

The Alternate Minimum Tax provides for the payment of a minimum tax by the non-corporate assessees. The AMT rate is 18.5% plus applicable surcharge and cess on the adjusted total income calculated as per the provisions of Section 115JC. AMT is levied in cases where the tax on taxable income is lower than that calculated on the adjusted total income as per AMT. Therefore, assessees to whom AMT applies shall pay AMT irrespective of whether they have any taxable income or not.

Applicability of AMT

While we discussed the alternate minimum tax meaning, a pertinent question arises – What is the applicability of AMT? AMT is applicable to the non-corporate assessees who have claimed the following deductions under the provisions of the income tax act:

  • Deduction under Chapter VI-A under heading ‘C – Deduction in respect of certain incomes’. It covers the deductions as specified under Section 80H to 80RRB. However, Section 80P, which contains provisions for deductions to the co-operative societies, has been excluded from the above sections.
  • Deduction under Section 35AD in respect of capital expenditures incurred by the assessee for which 100% deduction is allowed for specified businesses instead of the depreciation year-on-year basis.
  • Profit linked deductions provided to Special Economic Zone units under section 10AA.

Therefore, it can be concluded that AMT shall be applicable only on those non-corporate assessees that have income under the head ‘Profits and Gains from Business and Profession’.

Reporting Requirements for AMT

Assessees to whom AMT is applicable shall obtain a report from a Chartered Accountant in Form 29C certifying that the adjusted total income and AMT have been calculated as per the provisions of the income tax act. The report should be furnished on or before the due date for filing the return of income.

Exemption from AMT

The provisions of AMT shall not be applicable to individuals, HUFs, Body of Individuals (BOI), Association of Persons (AOP) or Artificial Juridical Person if their adjusted total income does not exceed Rs. 20 lakhs. Therefore, this exemption is limited only to the above-mentioned assessees and shall not be applicable to firms, LLPs or any other non-corporate assessees.
Further, assessees who have exercised the following options shall also be exempted from AMT:

  • Section 115BAC i.e., tax as per the new taxation regime
  • Section 115BAD i.e., tax on certain resident co-operative societies 

How to Calculate AMT?

Following is the methodology to be followed for the calculation of adjusted total income for AMT:

Taxable Income [A]

xxx

Add

Deductions claimed under Chapter VI-A, heading ‘C-Deduction in respect of certain incomes’ as specified under section 80H to 80RRB (except Section 80P) [B]

xxx

Deduction claimed under Section 35AD in respect of specified businesses as reduced by the amount of depreciation as per section 32 assuming no deduction under section 35AD is allowed in respect of such capital expenditure [C]

xxx

Deduction claimed in respect of Section 10AA [D]

xxx

Adjusted total Income [E=A+B+C+D]

xxx

E * (AMT @18.5% + Applicable surcharge and cess)

xxx

What is AMT Credit?

In case the tax liability as per AMT is more than the normal tax liability of the non-corporate assessee, then such assessee shall pay his tax calculated as per the provisions of AMT. However, AMT is not the actual tax liability. It is only a measure taken by the government to ensure that each assessee pays a minimum amount as tax. If AMT is treated as the actual tax liability, then it will defeat the purpose of the deductions as granted in the above sections.

This is where AMT credit comes to the picture. The excess tax paid over the normal tax liability is the AMT credit that can be used to settle future tax liabilities. In the succeeding years, in case the normal tax is higher than the AMT liability, then AMT credit can be used to pay the difference between the normal tax and AMT liability. The remaining balance (if any) can be again carried forward to the succeeding financial years.

AMT credit can be carried forward for 15 years following which it shall lapse. Further, if there are any changes in the normal tax due to an order passed by the income tax department, then AMT shall change accordingly.

Concessional Rate for AMT

AMT rate has been subsidised for certain assessees. This includes:

  • For a unit located in International Financial Service Centre that derives its income solely in the convertible foreign exchange, AMT shall be applicable @ 9%.
  • For co-operative societies, the AMT rate shall be @ 15%.

Practical Illustration for AMT

Let’s understand the AMT with a practical illustration:

A partnership firm claims deduction under both Section 35AD and Chapter VI-A Heading-C. Following is the taxability of its transactions undertaken during the year:

Particulars

FY 2020-21

FY 2021-22

Taxable Income [A]

2,40,000

11,60,000

Add:

Deductions claimed under Section 35AD [B]

6,50,000

-

Deductions claimed under Chapter VI-A Heading-C [C]

3,20,000

2,90,000

Adjusted Total Income for AMT [D = A-B-C]

12,10,000

14,50,000

Tax liability as per Normal Provisions [E = A * 30% plus cess @ 4%]

74,880

3,61,920

Tax liability as per AMT [F = D * 18.5% plus cess @ 4%]

2,32,804

2,78,980

Tax Payable [G = Higher of E and F]

2,32,804

3,61,920

AMT Credit Adjusted [H = E-F]

-

82,940

Net Tax Payable [G-H]

2,32,804

2,78,980

AMT credit C/F [Rs. 1,57,924 – Rs. 82,940]

1,57,924

74,984

Analysis

In the financial year 2020-21, the taxable income of the firm was just Rs. 2,40,000 owing to multiple deductions. After the deductions were added back for calculating the adjusted total income as per AMT of the firm, the adjusted total income totalled Rs. 12,10,000. As the tax on taxable income was Rs. 74,880 while the AMT was Rs. 2,32,804, therefore, the final tax payable shall be as per AMT, it being higher than the normal tax computed. The additional tax paid over the normal tax liability i.e., Rs. 1,57,924 shall be carried forward to the next year as AMT credit.

In the financial year 2021-22, the normal tax liability is Rs. 3,61,920 while the tax payable as per AMT is Rs. 2,78,980. In this year, the firm shall discharge its normal tax liability, it being higher than AMT. However, as it has unutilised AMT credit, therefore, it can utilise its AMT credit up to Rs. 82,940, being the difference between the normal tax liability and AMT payable in the current year. Remaining credit of Rs. 74,984 shall be carried forward to the next year.

 


Author : Dipen

Date     : 01-Jul-2022


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