The Income Tax Department had introduced the provision of AMT i.e. Alternate Minimum Tax for taxpayers other than Company. The government had introduced incentives and deductions to specified industries to encourage investment and growth. There were many taxpayers who misused the provision by paying zero tax. Thus, the IT department introduced MAT (Minimum Alternate Tax) for Companies and AMT (Alternative Minimum Tax) for taxpayers other than Company. As part of AMT, the government ensured collecting minimum tax from such taxpayers. Further, it also gave an option to carry forward the AMT Credit and adjust it in future years.
Applicability of AMT
The provisions of Alternative Minimum Tax are applicable to the following category of taxpayers:
- Individual, HUF, AOP (Association of Persons) or BOI (Body of Individuals) if the adjusted total income exceeds INR 20 lacs
- Any other taxpayer (other than Company) irrespective of the total income.
The AMT provisions are applicable to the above category of taxpayers only if:
- Taxpayer claims a deduction under Section 80H to Section 80RRB (except Section 80P)
- Taxpayer claims a deduction under Section 35AD.
- The taxpayer claims a deduction under Section 10AA.
AMT Rate & Adjusted Total Income
Rate of Alternative Minimum Tax is 18.5% of the Adjusted Total income. In addition to this, surcharge and cess are applicable. Calculate the adjusted total income in the following manner:
|Add||Deduction claimed u/s 80H to 80RRB (except 80P)||XXXX|
|Add||Deduction claimed u/s 35AD reduced by regular depreciation allowed as per Section 32||XXXX|
|Add||Deduction claimed u/s 10AA||XXXX|
|Adjusted Total Income||XXXX|
|AMT – 18.5% of Adjusted Total Income||XXXX|
Tax Liability if AMT is applicable
If the provisions of Alternative Minimum Tax are applicable, Tax Liability would be higher of the following:
- Tax Liability as per normal provisions of the Income Tax Act
Calculate Total Income of the taxpayer from all sources of income and after claiming Chapter VI-A deductions. Calculate Tax Liability on the Total Income as per the applicable slab rates.
- Tax Liability as per AMT Rate
Calculate Adjusted Total Income of the taxpayer as per the above table. Calculate Tax Liability on the Adjusted Total Income at the rate of 18.5%.
Taxable Income of Samir for FY 2019-20 is INR 18,00,000. The taxable income is computed after claiming the deduction of INR 3,00,000 under Section 80QQB for a royalty on books. Is he covered under the provisions of AMT? Calculate Tax Liability.
- Calculate Adjusted Total Income
Taxable Income = INR 18,00,000
Add: Deduction u/s 80QQB = INR 3,00,000
Adjusted Total Income = INR 21,00,000
- Applicability of AMT
Adjusted Total Income exceeds INR 20 lacs. Therefore, the provisions of Alternative Minimum Tax are applicable.
- Calculate Tax Liability as per normal provisions
Tax on Total Income of INR 18,00,000 as per slab rates
Basic Tax = INR 3,52,500
Total Tax = Basic Tax + Cess = 3,52,500 + 4% Cess = INR 3,66,600
- Calculate Tax Liability as per AMT provisions
Tax on Adjusted Total Income of INR 21,00,000 at 18.5%
Basic Tax = INR 3,88,500
Total Tax = Basic Tax + Cess = 3,88,500 + 4% Cess = INR 4,04,040
- Final Tax Liability
Higher of the above = INR 4,04,040
- AMT Credit
Tax as per AMT – Tax as per Slab rates = 4,04,040 – 3,66,600 = INR 37,440. The AMC Credit can be carried forward for 15 years.
A taxpayer to whom provisions of Alternative Minimum Tax are applicable pays tax as per normal provisions or as per the rate of 18.5% whichever is higher. When the tax liability for a financial year is paid as per Alternative Minimum Tax, the taxpayer can claim the credit of excess tax paid in the future financial years as per Section 115JD of the Income Tax Act. Excess Tax is the amount of Alternative Minimum Tax paid in excess of tax as per normal provisions.
The AMT Credit can be carried forward for a period of 15 financial years. If the taxpayer is unable to utilise the AMT Credit in 15 years, this credit will lapse. No interest is paid on such credit.
Aryan Enterprises is a Partnership Firm covered under the provisions of Alternative Minimum Tax. Below are the details:
Tax Liability as per normal provisions = INR 15,00,000
Tax Liability as per AMT provisions = INR 18,00,000
Final Tax Liability = INR 18,00,000 (higher of the above)
Carry Forward AMT Credit = INR 3,00,000 (18,00,000-15,00,000)
Tax Liability as per normal provisions = INR 10,00,000
Tax Liability as per AMT provisions = INR 9,00,000
Brought forward AMT Credit from FY 2019-20 = INR 3,00,000
Final Tax Liability = INR 10,00,000 (higher of the above)
Since there is an AMT Credit of the previous financial year, the taxpayer can utilise AMT Credit up to the extent of difference between tax liability as per normal provisions and tax liability as per AMT.
Thus, the credit can be utilised for INR 1,00,000 (10,00,000-9,00,000). Remaining Credit of INR 2,00,000 can be carried forward to future years.
Report from CA
A taxpayer to whom the provisions of Alternative Minimum Tax are applicable should obtain a report from a Chartered Accountant in Form 29C. It is the report under Section 115JC of the Income Tax Act Under this report, the CA would certify that the Adjusted Total Income and AMT is calculated as per the provisions of the Income Tax Act.