AMT Basics: A Guide for Taxpayers

Alternate Minimum Tax (AMT)

To encourage investment, the Indian government offers tax benefits to reduce individual tax burdens. However, consistent tax revenue is essential for funding development and public services. To ensure minimum tax collection from those claiming deductions, the Finance Act of 1996 introduced Minimum Alternate Tax (MAT) for corporations. Similarly, the Finance Act of 2011 introduced Alternative Minimum Tax (AMT) for non-corporate taxpayers.

What Is AMT, and Why Was It Implemented?

Alternative Minimum Tax is an alternative to the regular tax liability. It does work on the same principle as MAT, but it is unique in terms of applicability, exemptions, rules, deductions, and calculations. 

The government introduced AMT in order to find a balance between offering tax deductions/exemptions and collecting minimal taxes. 

Applicability of AMT

List of taxpayers covered under Section 115JC of the IT Act:

• Non-corporate taxpayers
• Individuals, HUFs, Body of Individuals, and Association of Persons  (only when their total adjusted income exceeds Rs. 20,00,000 annually) 

However, these taxpayers have to pay AMT only when they claim the following deductions:

• Deductions claimed under Chapter VI A of IT Act: These include Sections 80H to 80RRB but taxpayers claiming deductions under Section 80P related to cooperative societies are not eligible for paying AMT. 
• Deductions claimed under Section 35D of the IT Act: This Section allows 100% deductions on depreciation of capital assets when such assets have been in use for some specific businesses like cold storage facilities, fertilizer manufacturing, etc. 
• Additionally, taxpayers claiming deductions under Section 10AA of the Income Tax Act need to pay AMT.

Tax Liability Applicable for AMT

The tax liability will be higher of the two whenever AMT is applicable under Section 115JC of the Income Tax Act:

• Tax liability is computed as per normal slab rates after taking into consideration all deductions and relaxations available under different chapters of the IT Act. 
• Tax liability computed as per AMT rate of 18.5% on adjusted total income.

 What is AMT Credit?

A non-corporate taxpayer to whom the provisions of AMT apply 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.

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 15 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.

For Example:

F.Y. 2023-24:

Normal Rates = Rs. 12,00,000/-

As per AMT= Rs. 14,00,000/-

Liable to pay AMT as tax liability as per normal rate is lower.

F.Y. 2024-25:

Normal Rates = Rs. 16,00,000/-

As per AMT= Rs. 15,00,000/-

Liable to pay tax as per the normal rates.

As there was AMT paid in the preceding year, they have total AMT credit of Rs. 14,00,000 – Rs. 12,00,00 = Rs. 2,00,000 with them.

They can use this credit for an amount not exceeding the difference between the normal rate and AMT in FY 2024-25 i.e. Rs. 1,00,000 (Rs. 16,00,000 – Rs. 15,00,000).  The remaining credit can be forwarded to the coming years.

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