Alternate Minimum Tax (AMT): An overview of the provision applicable to Individual, HUF, Firms, AOP etc

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Alternate Minimum Tax (AMT): An overview of the provision applicable to Individual, HUF, Firms, AOP etc

Alternate Minimum Tax (AMT) provision is introduced in the Income Tax Act so as to collect minimum taxes from the Non Corporate Assessees who are claiming certain profit linked deductions.

It is applicable when the Tax as per normal provisions is less than Alternate Minimum Tax. AMT has to be computed on Adjusted Total Income whereas Normal regular tax is required to be computed on Total Income only.

As per section 115JC of Income Tax Act,1961, AMT is Alternate Minimum Tax  computed on the adjusted total income of a non-corporate assessee.

Whenever the regular income-tax payable in any previous year by any  person other than a company is less than the alternate minimum tax payable for such previous year, then the adjusted total income is deemed to be the total income of that person for such previous year. Such income is then for income-tax at the rate of 18.5%.

However if the person referred to therein, is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, the rate of AMT will be 9%.

Applicability:

  1. The primary condition for applicability of AMT is that the assessee should be Non Corporate.
  2. It is applicable only if such assessee should have claimed deduction under
    a) Chapter VI heading C i.e. Deductions in respect of certain incomes except section 80Por
    b) under section 10AA i.e., Profit derived by SEZ Units or
    c) Section 35AD i.e. Deduction for expense on specified business like warehouse, cold storage etc
  3. Adjusted total income of such assessee exceeds Rs. 20 Lakh

Non Applicability of Alternate Minimum Tax (AMT):

In short, AMT is not applicable if the Assessee is a corporate assessee or the Assessee is an Individual, HUF, AOP, BOI (whether incorporated or not), Artificial Judicial Person and its Adjusted Total Income does not exceed Rs 20 Lacs.

 

 

The computation of the adjusted total income has to be done as under:

Total Income of the assessee computed under normal provisions of the Act xxx
Add:
a)     Deduction claimed under Chapter VI heading C i.e.,  80 H to 80 RRB except u/s 80P  
b)     Deduction claimed under section 10AA xxx
c)     Deduction claimed under section 35AD xxx
Less:
Depreciation allowed u/s 32 of the Act as if no deduction u/s 35 AD in respect of such assets was allowed. (xxx)
Adjusted Total Income (ATI) xxx

The basic rate of AMT is 18.5 % which is to be increased further by the amount of surcharge and Education & Secondary Higher Education Cess, as the case may be.

The present rate of Surcharge in case of firms/ cooperative societies is 12% if income exceeds Rs. 1 Cr.

For other cases like individual, HUF, AOP etc Surcharge is as under:

  1. a) If Adjusted Total Income is exceeding 50 Lacs but not exceeding Rs 1 crores: 10%
    b) If Adjusted Total Income exceeds Rs 1 crore will be 15%.

In short, the effective tax rate of AMT shall be as under:

In case of firms/ cooperative society Any other Non Corporate assessee
If the Adjusted Total Income exceeds Rs. 50 Lacs but less than Rs 1 crores 19.24% 21.164%
If Adjusted Total Income exceeds Rs 1 crore. 21.5488% 22.126%

Credit towards AMT in subsequent Years:

AMT is like an advance payment of tax and the credit towards AMT can be availed in the next year. AMT is payable only if the normal tax liability is less than the AMT liability.

If in any year AMT is payable then the difference between the Normal Tax Payable and AMT paid is allowed as AMT Credit and can be adjusted with normal tax liability in subsequent years in which the normal income tax payable exceeds the AMT .

AMT Credit can be carried forward up to 15 years.

To illustrate, M/s Shyam Enterprises, an Individual assessee  in AY 2020-21 having total income of Rs 80 Lacs and has claimed deduction under Chapter VI A heading C of Rs 60 Lacs.

Tax Calculation as per the normal tax provision:

Total Income : 80 Lacs
Less Deduction u/c VI A – Heading C except section 80P 60 Lacs
Taxable Income: 20 Lacs
Tax Payable: 4.29 Lacs

Tax Calculation as per the AMT provision U/s 115JC:

Adjusted Total Income:

Taxable Income under normal Tax Provisions: 20 Lacs
Add: Deduction Under Chapter VI A, heading c: 60 Lacs
Adjusted Total Income: 80 Lacs
AMT Payable: 22.125 Lacs

Since AMT payable is more than the Normal Tax Payable, the assessee will be required to pay tax of Rs 22.125 Lacs.

However, he will get a tax credit of Rs 17.835 Lacs (22.125-4.29). This amount can be carried forward and set off for a period of 15 years.

Now, suppose in next year the assessee has total income of Rs 30 Lacs and deduction u/c VI  A heading C is Rs 3 Lacs, then:

Normal Tax Calculation:

Total Income : 30 Lacs
Less Deduction u/c VI A heading c: 3 Lacs
Taxable Income: 27 Lacs
Tax Payable: 6.474 Lacs

AMT Liability would be as under:

Adjusted Total Income:

Taxable Income under normal Tax Provisions: 27 Lacs
Add: Deduction u/c VI A heading c: 3 Lacs
Adjusted Total Income: 30  Lacs
AMT Payable: 8.17 Lacs.

Now, since the Tax Payable under the normal provision is more than the AMT payable, the assessee will have to pay the Normal tax of Rs 8.17 Lacs. Also, the assessee will get AMT credit of 8.17 Lacs available and balance Rs. 13.955 Lacs will be carried forward for set off against future year’s tax liability.

  1. One must carefully note that deductions u/s 80 C to 80GGC, 80 U and 80P are not to be added back in calculation of Adjusted Total Income.
  2. It is provided that assessee covered by AMT provision have to obtain a report in a prescribed format from an Chartered Accountant, certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of Chapter XIIBA and furnish the same on or before the due date of filing of the return u/s. 139(1).
  3. The assessee is eligible to claim the AMT credit in subsequent years even if the chapter of 115JC is not applicable in that year.
  4. The provisions relating to Advance tax, interest under sections 234A, 234B and 234C penalty, etc. shall apply to such non-corporate also.

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