Alternative Minimum Tax (AMT) on Assessees Other Company: The Alternative Minimum Tax or AMT under section 115JC is a provision for taxpayers other than their company. The income tax department introduced this provision for taxpayers. The government has introduced many incentives and deductions for some industries to encourage them to grow and invest more. Many often misuse it and pay zero tax for it. Hence, the IT department has introduced the MAT or Alternate Minimum Tax for companies to stop the exploitation of the law. As a part of the AMT law, the government has ensured that they can collect minimum tax from taxpayers for other companies. They also have the option of carrying forward the AMT credit and use it to adjust the future bills later.
- Applicability of Alternate Minimum Tax (AMT)
- What is the Rate of AMT and the Adjusted Total Income?
- What is the Tax Liability if AMT is Applicable?
- AMT Credit
Applicability of Alternate Minimum Tax (AMT)
The following category of taxpayers can use the AMT provision. The conditions are as follows.
- The individual can be a HUF, an AOP (Association of Persons) or BOI (Body of Individuals), given that the adjusted total income exceeds Rs. 20 Lakhs.
- Any taxpayer can avail of it but a company cannot. A person can use it irrespective of their total income.
The AMT provision is for taxpayers only if they follow the conditions below.
- The taxpayers claim a deduction under Section 80H till Section 80RRB (but not Section 80P).
- The Taxpayers have claimed a deduction under Section 35AD.
- The taxpayers claim a deduction under Section 10AA.
What is the Rate of AMT and the Adjusted Total Income?
The rate for Alternative Minimum Tax is 18.5% of the Adjusted Total Income. Again, the surcharge and cess amounts are also applicable. One can calculate the adjusted total income by following the steps below.
- Step 1: Add the deduction you claimed u/s 80H till 80RRB (apart from 80P) with the total taxable income.
- Step 2: Add the deduction that you claimed u/s 35AD and reduce the regular depreciation that Section 32 allows.
- Step 3: Add the deduction you claimed u/s 10AA.
- Step 4: It will give you the Adjusted Total Income.
- Step 5: The amount of AMT will be 18.5% of the Adjusted Total Income you calculated.
What is the Tax Liability if AMT is Applicable?
If someone has the requirements to be applicable for the Alternative Minimum Tax, then their liability will be higher in the following areas:
- Tax Liability under the standard provisions of the Income Tax Act: You can calculate the total income from all sources of income after you have claimed the Chapter VI-A deductions. Calculation of Tax Liability will be applicable on the total revenue according to the current applicable slab rates.
- Tax Liability as per the Rate of AMT: You can calculate the Adjusted Total Income according to the above table. The tax liability will be 18.5% of the Adjusted Total Income.
For example, suppose X’s taxable income for the financial year 2019-2020 is Rs. 18,00,000. In that case, the authorities will calculate the taxable income after claiming the deduction under Section 80QQB hat will amount to Rs. 3,00,000 for royalty on books.
- Therefore, the taxable income will be Rs.18,00,000.
- We add the deduction u/s 80QQB= Rs. 3,00,000.
- Then the adjusted total income will be= Rs. 21,00,000.
- Since the adjusted total income is more than Rs. 20 lakhs, X can apply the provisions of Alternative Minimum Tax.
- The tax liability as per standard provisions will be the tax on a total income of Rs. 18,00,000 as per the current slab rates, and the basic tariff is Rs. 3,52,500.
- Hence, the total tax will be Basic Tax + Cess= 3,52,500 + 4% Cess= Rs. 3,66,600
Suppose a taxpayer is applicable to use the Alternative Minimum Tax provisions according to the standard requirements and the 18.5% rate or whichever is higher. In that case, the tax liability for a financial year they have to pay will be as per the Alternative Minimum Tax. They can claim the credit of excess tax they have settled in the future financial year according to Section 115JD of the Income Tax. The extra tax they pay will be the amount of Alternative Minimum Tax they spent more than a tax as per the standard provisions.
A taxpayer can carry the AMT Credit forward for 15 financial years. If they cannot utilise the credit within 15 years, then the credit will lapse. They will not get any interest on the credit.
If a taxpayer can apply the provisions of Alternative Minimum Tax, then they have to obtain a report from a registered Chartered Accountant with Form 29C. They have to file the notice under section 115JC of the Income Tax Department. If they file it, the CA will check it and certify that the Adjusted Total Income and the AMT will be as per the provisions of the Income Tax Act.