CA Amit Maheshwari

Article explains what is Alternate Minimum Tax (AMT), When to Apply AMT and its rate , Need  For AMT, Applicability of Alternate Minimum Tax (AMT), Non Applicability of Alternate Minimum Tax (AMT), Rate of AMT, Credit & carry Forward of AMT, Some Key Points related to AMT  and calculation of AMT with the help of example.

What is Alternate Minimum Tax (AMT)?

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.

When to Apply AMT and its rate

Where the regular income-tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income-tax on such total income at the rate of 18.5%.

Note: Where 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%.

Need  For AMT?

AMT is introduced in the Act, to reach and collect minimum taxes from the Non Corporate Assessees who are claiming certain profit linked deductions. AMT is payable when Tax as per normal provisions is less than Alternate Minimum Tax on Adjusted Total Income.

Applicability of Alternate Minimum Tax (AMT):

1. The primary condition for applicability of AMT is that the assessee should be Non Corporate.

2. Such assessee should have claimed deduction under

  • chapter VI heading C ( Deductions in respect of certain incomes except u/s 80P) or
  • under section 10AA ( Profit derived by SEZ Units) or
  • Section 35AD ( Deduction for expense on specified business)

Non Applicability of Alternate Minimum Tax (AMT):

AMT is not applicable if:

1. The Assessee is a corporate assessee

2. 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 Lakhs .

Hence, it can be said that AMT is applicable to Individual , HUF, AOP . BOI, Artificial Judicial Person, only if two conditions are satisfied:

  • It has claimed deductions under sections (10AA/ 35AD/ Chapter VI heading C)

AND,

  • The Adjusted Total Income `e:
Total Income of the assessee under normal provisions of the Act xxx
ADD:
Deduction claimed under Chapter VI heading C (  80 H to 80 RRB except u/s 80P )  
Deduction claimed under section 10AA Xxx
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 Xxx

Rate of AMT:

For AY 2020-21, the basic rate of AMT is 18.5 % which is increased by surcharge and Education & Secondary Higher Education Cess, as the case may be. It is summariesd as below:

In case of firms/ cooperative society Any other Non Corporate assessee
If Adjusted Total Income is exceeds 50 lakhs but upto Rs 1 crores 19.24% 21.164%
If Adjusted Total Income exceeds Rs 1 crore. 21.5488%* 22.126%*

*Surcharge in case of firms/ cooperative societies is 12% and

For other cases like individual, HUF, etc – Surcharge if Adjusted Total Income is exceeding 50 lakhs but upto Rs 1 crores will be 10% and If Adjusted Total Income exceeds Rs 1 crore will be 15%.

Credit & carry Forward of AMT:

AMT is payable if the normal tax liability is less than the AMT liability ( AMT > Normal Tax).

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/ future year in which the normal income tax payable exceeds the AMT . AMT Credit can be carried forward upto 10 years.

Example: An Individual assessee  in AY 2020-21 having total income of Rs 40 lakhs and has claimed deduction under Chapter VI A heading C of Rs 30 lakhs.

Normal Tax Calculation:

Total Income : 40 lakhs
Less Deduction u/c VI A heading c: 30 lakhs
Taxable Income: 10 lakhs
Tax Payable: 1.28 lakhs

AMT Calculation:

Adjusted Total Income:

Taxable Income under normal Tax Provisions: 10 Lakhs
Add: Deduction u/c VI A heading c: 30 Lakhs
Adjusted Total Income: 40 Lakhs
AMT Payable: 7.62 Lakhs

Since AMT payable is more than the Normal Tax Payable, the assessee will pay tax of Rs 7.62 lakhs. However, he will get tax credit of Rs 6.34 Lakhs ( 7.62-1.28)  which can be carried forward and set off upto 2030-31.

Now, suppose in next year the assessee has total income of Rs 50 lakhs and deduction u/c VI  A heading C is Rs 5 lakhs, then:

Normal Tax Calculation:

Total Income : 50 lakhs
Less Deduction u/c VI A heading c: 5 lakhs
Taxable Income: 45 lakhs
Tax Payable: 12.10 lakhs

AMT Calculation:

Adjusted Total Income:

Taxable Income under normal Tax Provisions: 45 Lakhs
Add: Deduction u/c VI A heading c: 5 Lakhs
Adjusted Total Income: 50  Lakhs
AMT Payable: 9.53 Lakhs.

Since, the Normal Tax Payable is more than the AMT payable, the assessee will pay the Normal tax of Rs 12.10 Lakhs. Also, the assessee will get AMT credit of 6.34 lakhs available to him.

Some Key Points related to AMT:

  • Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to a non-corporate referred to in this Chapter. Hence, all other provisions relating to Advance tax, interest under sections 234A, 234B and 234C penalty, etc. shall apply to such non-corporate also.
  • section 115JC lays down that an assessee liable to AMT should 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).
  • Deductions u/s 80 C to 80GGc,80 U and 80P are not to be added back in calculation of Adjusted Total In
  • Even if in any subsequent year the chapter of 115JC is not applicable, the assessee can claim credit in such previous year.

(Author can be reached at caamitmaheshwari@gmail.com)

(Republished with Amendments)

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3 Comments

  1. ARUN BHATIA says:

    Suppose in subsequent year, there is Nil deduction to be added back for computing adjusted total income, will the firm will be able to claim AMT credit of earlier previous years.

  2. anjali Kulkarni says:

    Some one is having amount kept under Capital Gain Fund Account and wishes to withdraw it. Since his income is below taxable limit and has furnished 15 G for his Fixed Deposits with the bank, what is the procedure to withdraw from CGFA without attracting TDS. Can you please guide ?

  3. NARENDER KUMAR THAKUR says:

    Could you please specify deductions available under Chapter VI-A in the previous year 2017-18 relevant to Assessment year 2018-19 especially with regard to Sections 80GGA [Help Age India & Akshayapatra] &/or 80G [NGOs caring for unprivileged and underprivileged sections of the Society for Medicare, meal, housing and clothing etc. & c]. It will certainly facilitate in tax planning inasmuch as how much to donate to whom for availing tax rebate under Sections 80GGA or 80G as these stands now.

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