The Government has introduced various profit-linked deductions and incentives to encourage investment in various industries. Taxpayers who are eligible to say such deductions/incentives would become zero tax companies or may find themselves paying marginal tax though they’re capable of paying normal tax. the govt also needs a regular/consistent inflow of tax which is one in every one of its major revenues to fund various expenses for the welfare of the country.

Hence, ensuring to not completely disrupt the intention of introducing such incentives/deductions by taking them away indirectly and also to make sure levy of tax on such zero tax/marginal tax companies, the concept of Minimum Tax was introduced.

This was initially introduced for companies within the name of ‘Minimum Alternate Tax (MAT)’ to gather minimum tax to be paid by companies who are claiming profit-linked deductions in such financial years wherein normal tax payable is less than minimum alternative tax. Adjusted total income is going to be computed for MAT by adding and deducting certain specified items. Then, tax at a rate not up to the traditional rate of tax is levied on the adjusted income. 

However, credit for MAT paid in earlier years was allowed to be carried forward and go away in subsequent years wherein normal tax payable was above MAT. Alternative Minimum Tax introduced for non-corporate taxpayers works on similar principles. However, applicability, manner of computation of adjusted income, reporting requirement, etc are different compared to minimum alternative tax. 

Table of contents 

Alternative Minimum Tax – Basics 

Applicability of AMT 

Exemption from Applicability of AMT 

Calculation of Adjusted Total Income Computation of liabilities When AMT Provisions are Applicable 

AMT Credit 

Reporting Requirement 

Illustration 

Budget 2022 update FM proposes to scale back the Alternate Minimum Tax (AMT) Rates to fifteen from 18.5% for the cooperative.

Alternative Minimum Tax – Basics 

As it is obvious from the name, AMT could be a minimum tax that’s a liveable alternative to normal tax. The rate of AMT is eighteen.5% (plus applicable surcharge and cess). 

If the person could be a unit located in a world Financial Services Centre (IFSC) and receives income solely in convertible foreign currency, the AMT rate is 9%. 

AMT could be a tax levied on ‘adjusted total income’ in an exceedingly FY wherein tax on normal income is under AMT on Adjusted total income. So, regardless of normal tax, AMT needs to be paid by taxpayers to whom AMT provisions apply. 

Applicability of AMT 

As already mentioned above, in the beginning, the concept of minimum tax was introduced for companies and progressively made applicable to non-corporate taxpayers. Finance Act, 2011 introduced AMT on financial obligation Partnership (LLP), and Finance Act 2012 amended the provisions because it stands today. Accordingly, AMT provisions are applicable 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 in respect of profits and gains of specific industries like hotel business, small scale industrial undertaking, housing projects, infrastructure development, etc. 

Deduction under Section 35AD – While the cost in assets usually qualifies for depreciation year on year, under this Section 100% deduction is allowed on the cost incurred for specified business e.g. operation of cold chain facility, fertilizer production, etc. 

Profit deduction under Section 10AA – Deduction of profit from 100% to 50% is provided to units in Special Economic Zones. Based on the above, it is often concluded that AMT provisions are applicable only to those noncorporate taxpayers having income under the pinnacle ‘Profits or Gains of Business or Profession’. Further, as mentioned above AMT provisions are applicable only to normal tax payable and are not up to AMT in any FY. 

Exemption from Applicability of AMT –

AMT provisions don’t seem to be applicable to a private, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of people (BOI) and the artificial juridical person whose adjusted total income doesn’t exceed Rs 20,00,000. Therefore, this exemption supported monetary threshold of adjusted total income isn’t applicable to LLPs, partnership firms, and other non-corporate assessees. 

Calculation of Adjusted Total Income 

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

Particulars Amount (in Rs) 

Taxable income (A) XXXXX 

Adjusted total income (E) = (A)+(B)+(C)+(D) XXXXX 

AMT – 18.5% of (E) XXXXX 

Computation of liabilities When AMT Provisions are Applicable 

Particulars Amount (in Rs) 

Tax liability computed as per normal provisions of the Income-tax Act – normal tax liability XXXX 

AMT computed at 18.5% (plus applicable surcharge and cess) on adjusted total income XXXX 

Tax liability of taxpayer Higher of the above 

AMT Credit

Though AMT was introduced to gather tax from zero tax companies, it had been also with the intention of getting a consistent flow of tax to the public funds. Therefore, while minimum tax is being levied in an FY wherein normal tax is below AMT, in subsequent FYs wherein AMT is under the normal tax, AMT paid earlier is allowed to be carried forward and reduced against tax to the extent of the difference between AMT normal tax. Balance if any after such depart will be carried forward to subsequent FYs. this idea is named AMT Credit.