Alternate Minimum Tax (AMT): AMT stands for Alternate Minimum Tax. Initially the concept of MAT was introduced for companies and progressively it has been made applicable to all other taxpayers in the form of AMT. In this part you can gain knowledge about various provisions relating to MAT and AMT. First of all we will understand the provisions of MAT and thereafter the provisions of AMT.
New Amendments
- Rate of Cess for Normal Tax as well as MAT shall be 4% HEC instead of 3% EC
- Rate of AMT for a unit located in IFSC deriving income solely in convertible foreign exchange, shall be 9%.
Provisions relating to AMT
The provisions of MAT are applicable to a corporate taxpayer only. The provisions relating to AMT are applicable to non-corporate taxpayers in a modified pattern in the form of Alternate Minimum Tax, i.e., AMT. Thus, it can be said that MAT applies to companies and AMT applies to a person other than a company. The provisions relating to AMT are given in sections 115JC to 115JF.
Basic provisions relating to applicability of the AMT to different taxpayers
The provisions of AMT will apply to every non-corporate taxpayer who has claimed (i) deduction under section 80H to 80RRB (except 80P), (ii) deduction under section 35AD and (iii) deduction under section 10AA. Thus, the provisions of AMT are not applicable to a noncorporate taxpayer who has not claimed any deduction under above discussed sections. However, following points should be kept in mind in this regard.
- The provisions of AMT shall apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person only if the adjusted total income (discussed later) of such person exceeds Rs. 20,00,000.
- The provisions of AMT shall apply to every other person (i.e., other than an individual or a HUF or an AOP/BOI or an artificial juridical person) irrespective of its income. For definition of a person refer to section 2(31).
Rate of AMT
In case of non-corporate taxpayer, AMT is levied @ 18.5% of adjusted total income (discussed later). Surcharge and cess as applicable will also be levied.
Meaning of adjusted total income
In case of a non-corporate taxpayer, adjusted total income is computed in following manner :
| Particulars | Amount |
| Taxable income of the taxpayer | XXXX |
| Add: Amount of deduction claimed under section 80H to 80RRB (except 80P) | XXXX |
| Add: Amount of deduction claimed under section 35AD (as reduced by the amount of depreciation allowable in accordance with the provisions of section 32) | XXXX |
| Add: Amount of deduction claimed under section 10AA | XXXX |
| Adjusted total income | XXXX |
Tax liability in case of a non-corporate taxpayers to whom the provisions of AMT apply
As per the concept of AMT, the tax liability of a non-corporate taxpayer will be higher of the following:
- Tax liability computed as per the normal provisions of the Income-tax Law, i.e., tax computed on the taxable income of the taxpayer at the tax rate applicable to him. Tax computed in above manner can be termed as normal tax liability.
- Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income. The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted total income is called AMT.
Example 1
The taxable income for the year 2014-15 of Mr.Kumar (resident and age 39 years) computed as per the provisions of Income-tax Act is Rs. 28,40,000. The taxable income has been computed after deduction of Rs. 2,00,000 under section 80QQB in respect of royalty on books. Will he be liable to AMT? What will be his tax liability for the year?.
Answer
The provisions of AMT shall apply to a non-corporate taxpayer if he has made any claim for deduction under section 80H to 80RRB (except section 80P), under section 35AD and under section 10AA. Further, the provisions of AMT shall apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person only if the adjusted total income of such person exceeds Rs. 20,00,000. In this case, Mr. Kumar has claimed deduction under section 80QQB and his adjusted total
income exceeds Rs. 20,00,000 and, hence, the provisions of AMT will apply to him.
By applying the provisions of AMT, the tax liability of Mr. Kumar will be higher of the following:
- Tax liability computed as per the normal provisions of the Income-tax Law, i.e., tax computed on the taxable income of the taxpayer by applying the tax rate applicable to him. Tax computed in above manner can be termed as normal tax liability.
- Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income. The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted total income is called AMT.
His taxable income is Rs. 28,40,000, tax on Rs. 28,40,000 by applying the tax rates applicable to an individual below the age of 60 years for the assessment year 2015-16 works out to Rs. ,77,000. Tax liability after cess of 2% and 1% would work out to Rs. 6,97,310.
Adjusted total income will come to Rs. 30,40,000 (Rs. 28,40,000 + Rs. 2,00,000, i.e., deduction under section 80QQB). AMT @ 18.5% on Rs. 30,40,000 will come to Rs. 5,62,400. AMT liability after cess of 2% and 1% will come to Rs. 5,79,272.
From the above computation it can be observed that the liability as per the normal provisions of the Income-tax Act is more than the liability as per the provisions of AMT and, hence, the tax liability of Mr. Kumar will be Rs. 6,97,310.
Example 1
The taxable income for the financial year 2014-15 of Mr. Ajay (resident and age 34 years) computed as per the provisions of Income-tax Act is Rs. 20,84,000. The taxable income has been computed after deduction of Rs. 5,00,000 under section 80JJA. Will he be liable to AMT? What will be his tax liability for the year?
Answer
The provisions of AMT shall apply to a non-corporate taxpayer if he has made any claim for deduction under section 80H to 80RRB (except section 80P), under section 35AD and under section 10AA. Further, the provisions of AMT shall apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person only if the adjusted total income of such person exceeds Rs. 20,00,000. In this case, Mr. Ajay has claimed deduction under section 80JJA and his adjusted total income exceeds Rs. 20,00,000 and, hence, the provisions of AMT would apply to him.
By applying the provisions of AMT, the tax liability of Mr. Ajay will be higher of the following:
- Tax liability computed as per the normal provisions of the Income-tax Law, i.e., tax computed on the taxable income of the taxpayer by the tax rate applicable to him. Tax computed in above manner can be termed as normal tax liability.
- Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income. The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted total income is called AMT.
His taxable income is Rs. 20,84,000, tax on Rs. 20,84,000 by applying the tax rates applicable to an individual below the age of 60 years for the assessment year 2015-16 works out to Rs. 4,50,200. Tax liability after cess of 2% and 1% would work outto Rs. 4,63,706.
Adjusted total income will come to Rs. 25,84,000 (Rs. 20,84,000 + Rs. 5,00,000, i.e., deduction under section 80JJA). AMT @ 18.5% on Rs. 25,84,000 will come to Rs. 4,78,040. AMT liability after cess of 3% will come to Rs. 4,92,381.
From the above computation it can be observed that the liability as per the provisions of AMT is more than the liability as per the normal provisions and, hence, the tax liability of Mr. Ajay would work out to Rs. 4,92,381 (i.e., as per AMT). The excess tax paid by Mr. Ajay on account of AMT can be claimed as AMT credit and can be carried forward for adjustment to next year(s) [provisions relating to AMT credit are discussed later].
AMT credit
As discussed in earlier part, a non-corporate taxpayer has to pay higher of normal tax liability or liability as per the provisions of AMT. If in any year the taxpayer pays liability as per AMT, then he is entitled to claim credit in the subsequent year(s) of AMT paid above the normal tax liability.
Example
The tax liability of Essem Enterprises (a partnership firm) for the financial year 2014-15 under the normal provisions of the Income-tax Act is Rs. 8,40,000 and the liability as per the provisions of AMT is Rs. 10,00,000. Will it be entitled to claim any AMT credit in the subsequent year(s)?
Answer
A non-corporate taxpayer paying AMT is entitled to claim the credit of AMT paid in excess of normal tax liability. In this case the liability of Essem Enterprises for the year 2014-15 under the normal provisions is Rs. 8,40,000 and as per the provisions of AMT is Rs. 10,00,000 (which is higher than normal tax liability) and, hence, the firm has to pay Rs. 10,00,000, i.e., liability as per AMT provisions.
If in any year, the taxpayer pays liability as per AMT, then it can claim AMT credit of the excess of AMT paid over the normal tax liability. In this case, the liability of AMT is higher, hence, the firm will be entitled to claim AMT credit of Rs. 1,60,000 (being excess of AMT over normal tax liability of Rs. 8,40,000).
Adjustment of carried forward AMT credit
As discussed earlier, a non-corporate taxpayer is entitled to claim AMT credit of excess AMT paid over the normal tax liability. The credit of AMT can be utilised by the taxpayer in the subsequent year(s). The credit can be adjusted in the year in which the liability of the taxpayer as per the normal provisions is more than the AMT liability. The set off in respect brought forward AMT credit shall be allowed in the subsequent year(s) to the extent of the difference between the tax on his total income as per the normal provisions of and the as per the AMT provisions.
Example
The tax liability of Essem Enterprises (a partnership firm) for the financial year 2014-15 under the normal provisions of the Income-tax Act is Rs. 18,40,000 and the liability as per the provisions of AMT is Rs. 18,00,000. It has brought forward AMT credit of Rs. 2,00,000. Can the firm adjust the AMT credit? If yes, then how much and what will be the tax liability of the firm after adjustment of AMT credit?
Answer
The AMT credit can be adjusted in the year in which the liability of the non-corporate taxpayer as per the normal provisions is more than the AMT liability. In this case, the liability as per the normal provisions of the Income-tax Act is Rs. 18,40,000 and the liability as per the provisions of AMT is Rs. 18,00,000. Liability as per the normal provisions is more than liability as per the provisions of AMT and, hence, the firm can adjust the AMT credit.
The set off in respect of brought forward AMT credit shall be allowed in the subsequent year(s) to the extent of the difference between the tax on his total income as per the normal provisions and the liability as per the AMT provisions. Thus, after set off of the AMT credit, the liability of the firm cannot be less than liability as per the provisions of AMT. In this case, the liability as per AMT is Rs. 18,00,000, and, hence, after claiming set off of the AMT credit, the liability of the firm cannot be less than Rs. 18,00,000. Hence, out of the credit of Rs. 2,00,000 the firm can claim credit of Rs. 40,000 only and the balance credit of Rs. 1,60,000 can be carried forward to next year(s).
Period for which AMT credit can be carried forward
As discussed earlier, a non-corporate taxpayer can carry forward the AMT credit for adjustment in subsequent year(s), however, the AMT credit can be carried forward only for a period of 10 years after which it will lapse. In other words, if AMT credit cannot be utilised by the non corporate taxpayer within a period of 10 years (immediately succeeding the assessment year in which such credit was generated), then such credit will lapse. No interest is paid to the taxpayer in respect of such credit.
Report from Chartered Accountant
Every non-corporate taxpayer to whom the provisions of AMT apply is required to obtain a report from a chartered accountant in Form No. 29C on or before the due date of filing the return of income.