Finance & Accounting

The Introduction of Alternate Minimum Tax in India

Tax is the primary source of revenue for the Government of India. The Indian government has given its taxpayers the benefit of multiple deductions and incentives to encourage tax payment. This facility resulted in some companies becoming “zero tax-paying” units, which ultimately resulted in a loss of revenue for the government. The concept of Alternate Minimum Tax was introduced to maintain a balance between introductions of such deductions and to ensure the levy of tax on such zero tax companies.

Alternative Minimum Tax – An Overview

Alternative Minimum Tax, as the name suggests, means the minimum amount of tax that is levied on income as opposed to the usual amount of tax. Such tax is paid at the rate of 18.5% plus applicable surcharge and cess. AMT is levied on adjusted income in a financial year in case the tax payable on regular income is less than AMT on adjusted total income. 

AMT is governed and regulated under Section 115JC of Income Tax Act, 1961.

What is the adjusted total income?

Adjusted Total income for Alternative Minimum Tax is a gross income that is increased by adding back all the deduction covered under Heading C of Chapter -VI. Thus, all the deduction from 80HH to 80RRB is added back to the Gross Income except Section 80P and 10AA.

Applicability of AMT

Initially, the concept of AMT was introduced to bring only the corporates under its ambit. Gradually, it was made applicable to non-corporate taxpayers as well. At present provisions of AMT are applicable on the following:

• Non-Corporate Taxpayers
• The taxpayer who has claimed the deductions allowed under sections 80H to 80RRB. These deductions can be claimed only by specific industries such as hotels, small scale undertakings, export business^[1], infrastructure development, etc.
• A taxpayer who claimed a deduction of 100% of capital expenditure incurred in a financial year as per section 35AD
•  A taxpayer who claims a deduction of 50% to 100% of profit provided to the units of SEZ under section 10AA.

Provisions of AMT are applicable in case Normal Tax Payable is lower than AMT in any Financial Year. Also, provisions of AMT apply only to those non-corporate taxpayers having taxable income under the head of Profit & Gains from Business and Profession (PGBP).

Exemption from the applicability of AMT

Provisions of AMT do not apply to the following:

• Taxpayer whose adjusted total income does not exceed INR 2000000:

• Individual
• HUF
• Associations of persons
• Body of Individuals
• Artificial Juridical Person
• The assessee who is a corporate taxpayer.

Rate of Tax as per AMT

Adjusted Total Income	Firms/Co-operative Society	Non-Corporate assessee
Up to INR 1 Crore	19.055% (Basic Rate+ Surcharge+ Edd Cess)	19.055% (Basic Rate+ Surcharge+ Edd Cess)
Exceed INR 1 Crore	21.3416 (Basic Rate+ Surcharge+ Edd Cess)	21.91325 (Basic Rate+ Surcharge+ Edd Cess)

Credit & carry forward of AMT

AMT is payable as per section 115JD of the Income Tax Act in case the normal amount of tax payable is less than the tax payable under AMT. Any difference between Normal Tax Payable and tax paid as per the provisions of AMT is allowed as an AMT credit. Such credit can be adjusted with normal tax liability arising in subsequent or future year in which normal tax payable exceeds AMT.

During any financial year, such tax credit is allowed to be set off to the extent of the excess of regular income tax over and above the tax payable under the provisions of AMT.

Following conditions are to be satisfied for claiming AMT credit:

• Credit is allowed to be set off up to the maximum period of the 15^th assessment year.
• No interest is payable on such credit
• The tax credit allowed under section 115JD varies in case the amount of regular income tax or AMT changes due to any order passed under the Income Tax Act, 1961.

Key-Points for understanding section 115JC- AMT

• Section 115JC requires that the assessee on whom the provisions of this section apply shall get a report in the prescribed format from a Chartered Accountant certifying that the total adjusted income and alternative minimum tax has been computed as per the provisions of this section.
• The credit of AMT is not allowed to be carried forward in case of the conversion of a Company to LLP.
• Deductions under section 80C to 80GGc, 80U, and 80P are not allowed to be added back to adjusted total income.