Alternate Minimum Tax
Table of Contents:
- Introduction
- Non applicability
- Rate of AMT
- Adjusted Total Income
- Tax Liability
- AMT credit
- Report from Chartered Accountant
- Illustrations
Introduction
Alternate Minimum Tax are applicable to person other than company. Alternate minimum Tax prescribes minimum Tax that individuals have to pay if it fulfils certain conditions. Section 115JC to section 115JF state the provisions related to AMT. The provisions of AMT will apply to every non-corporate taxpayer who has claimed –
- deduction under section 80H to 80RRB (except 80P),
- deduction under section 35AD and
- deduction under section 10AA.
Non applicability
Thus, the provisions of AMT are not applicable to a non corporate taxpayer who has not claimed any deduction under above discussed sections. The provisions of AMT shall apply to an individual or a Hindu undivided family or an association of persons or a body of individuals or an artificial juridical person only if the adjusted total income of such person exceeds Rs. 20,00,000.If an assessee has opted to pay tax under new Tax regime then provision of AMT shall not be applicable to them.
Rate of AMT
AMT is levied @ 18.5% of adjusted total income. Surcharge and cess as applicable will also be levied. However, AMT is levied @ 9% in case of a non-corporate assessee being a unit located in International Financial Services Centre and deriving its income solely in convertible foreign exchange. Surcharge and cess as applicable will also be levied.
Adjusted total income
In case of a non-corporate taxpayer, adjusted total income is computed in following manner :
Particulars
| Rs. |
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
The tax liability of a person to whom the provisions of AMT applies will be higher of the following:
Tax liability computed as per the normal provisions of the Income-tax Law. This is called normal Tax liability
Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income. Tax computed in this manner is called AMT.
Note: AMT is levied @ 9% in case of a non-corporate assessee being a unit located in International Financial Services Centre and deriving its income solely in convertible foreign exchange. Surcharge and cess as applicable will also be levied.
AMT credit
A non-corporate taxpayer to whom the provisions of AMT applies 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.
Provided that where the amount of Foreign Tax Credit (‘FTC’) allowed against the AMT exceeds the amount of such FTC admissible against the tax payable by the assessee under normal provisions of the Income-Tax Act, then, while computing the amount of FTC under this subsection, such excess amount shall be ignored.
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. The AMT credit can be carried forward only for a period of 15 years after which it will lapse. In other words, if AMT credit cannot be utilised by the non-corporate taxpayer within a period of 15 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 before the date referred to in Section 44AB.
Illustrations
1) The taxable income for the year 2021-22 of an Indian resident Mr. Ram age 21 years computed as per the provisions of Income-tax Act is Rs. 21,00,000. 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?
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. Ram 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. Ram will be higher of the following:
- Normal Tax Liability: Tax on Rs 21 ,00,000 is Rs 4,60,200 (after health and eduction cess)
- Tax as per AMT: Adjusted total income will come to Rs. 23,00,000 (Rs. 21,00,000 + Rs. 2,00,000, i.e., deduction under section 80QQB). AMT @ 18.5% on Rs. 23,00,000 will come to Rs 4,25,500. AMT liability after health & education cess of 4% will come to Rs 4,42,500.
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. Ram will be Rs 4,60,200.
2) The taxable income for the financial year 2021-22 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?
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:
- Normal Tax Liability: 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 2021-22 works out to Rs. 4,37,700. Tax liability after health & education cess of 4% would work out to Rs. 4,55,208.
- Tax as per AMT : 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 4% will come to Rs. 4,97,162.
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. 4,97,162 (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).