Alternate Minimum Tax
Alternate Minimum Tax: Understanding Its Applicability & Benefits
In this post, we will discuss the concept of Alternate Minimum Tax (AMT), its applicability, and how it ensures that non-corporate taxpayers contribute a minimum amount of tax. We will also cover the exemptions, tax rates, and the AMT credit system and provide clarity on how AMT affects individuals and businesses.
Let’s look at each section:
What is Alternate Minimum Tax (AMT)?
Alternative Minimum Tax (AMT) in India is a system where the government charges an alternate tax on companies that pay little to no taxes. This was introduced to ensure such companies still contribute a fair share, despite using various deductions.
For individuals and non-corporate entities, AMT requires them to calculate their taxes normally. If their tax liability is less than 18.5%, they must pay the AMT rate of 18.5%.
Simply put, individuals and non-corporates must pay the higher of the following:
- Tax as per the regular Income Tax Act, 1961.
- AMT at 18.5%.
This ensures that everyone pays at least a minimum amount of tax.
Applicability of AMT
The following entities are subject to the Alternative Minimum Tax (AMT):
- Non-corporate taxpayers
- Taxpayers who have claimed deductions under Sections 80H to 80RRB, which are available to specific industries such as small-scale businesses, hotels, export companies, and infrastructure developers.
- Taxpayers who have claimed 100% of their capital expenses in a financial year under Section 35AD.
- Taxpayers who have claimed deductions of 50% to 100% of profits for Special Economic Zone (SEZ) units under Section 10AA.
Note: AMT provisions also apply to non-corporate taxpayers with taxable income from business or profession.
Exemptions from AMT
Although AMT provisions apply to all non-corporates and individuals, certain groups are exempt if their annual income is less than INR 20,00,000. These exempted groups include:
- Individuals
- Hindu Undivided Families (HUFs)
- Body of Individuals (BOI)
- Association of Persons (AOP)
- Artificial Juridical Persons
They are not subject to AMT if their income is below the threshold.
Tax Rate as per AMT
Here’s a simplified version of the tax rates under the Alternate Minimum Tax (AMT):
No | Adjusted Total Income | Firms or Cooperative Societies | Other Non-Cooperative Assessees |
1. | Up to ₹1 crore | 19.055% (including surcharge and cess) | 19.055% (including surcharge and cess) |
2. | Above ₹1 crore | 21.3416% (including surcharge and cess) | 21.91325% (including surcharge and cess) |
This table shows the tax rates, inclusive of all additional charges, based on adjusted total income.
How is Tax Calculated Under AMT?
The tax calculation under the AMT provisions is as follows.
Particulars | Amount (₹) |
Normal tax liability (as per the Income Tax Act, 1961) | 2,00,000 |
Alternative Minimum Tax (AMT) @ 18.5% | 2,40,500 |
Tax liability under AMT (higher of the two amounts above) | 2,40,500 |
AMT Credit
AMT credit, or Minimum Tax Credit, is generated when someone pays the Alternative Minimum Tax (AMT) in a previous year but doesn’t owe it in later years because their regular tax is higher than their AMT. This credit can be carried forward to lower regular tax in future years.
However, there are rules and limits on how to use the AMT credit, which can change with tax laws. It’s a good idea to check with a tax expert or use trusted tax software to correctly calculate and apply the credit.
Credit and Carry Forward of AMT
Under Section 115JD of the Income Tax Act, Alternate Minimum Tax (AMT) must be paid if the regular tax is lower than the tax calculated under AMT. The difference between the regular tax and AMT is given as AMT credit, which can be used to reduce future tax payments in years when the regular tax is higher than the AMT.
This AMT credit can be carried forward for up to 15 years after the year in which it was first allowed. You can use the credit to reduce your tax liability each year, but only if your regular tax exceeds the AMT for that year.
We have reached the end of this post. Please share your queries with us in the comment section below.
FAQs
1.What is the definition of Minimum Alternative Tax (MAT)?
Ans: Minimum alternative tax (MAT) is quite similar to AMT. However, MAT does not apply to individuals or other entities; rather, it applies to businesses.
2.How do MAT and AMT differ?
Ans:While MAT applies to businesses and organizations, AMT applies to individuals and non-business entities. Also, AMT is based on Adjusted Total Income, whereas book profits determine MAT.
