Applicability of AMT


MAT is applicable to companies only, whereas AMT is applicable to non-corporate taxpayers. Thus, it can be said that MAT applies to companies and AMT applies to a person other than a company. The provisions relating to AMT are given in sections 115JC to 115JF of Income Tax Act.


Alternate Minimum Tax (AMT) is applicable on all assessees except companies, if the tax payable under the normal provisions of Income Tax is less than 18.5% of the Adjusted Total Income (plus surcharge and cess as applicable).

However, in the case of individuals, HUF (Hindu Undivided Family), Association of Persons (AOPs) and Artificial Judicial person, AMT shall not be payable if adjusted total income of the assessee does not exceed Rs. 20 Lakhs, 

 

In essence, AMT will only apply to an assessee who has claimed any deduction under-

a) sections 80-IA to sections 80RRB (other than section 80P); or

b) section 10AA (Deduction in respect of SEZ units); or

c) section 35AD


Rate of AMT

AMT is levied at 18.5% of adjusted total income in case of non-corporate taxpayer. Surcharge and cess will also be levied as applicable.


However, AMT is levied at the rate of 9% in case of a non-corporate assessee’s unit situated in an International Financial Services Centre and generates its income exclusively in convertible foreign exchange. Surcharge and cess will also be levied as applicable. (Applicable from Assessment Year 2019-20)


Calculation of Adjusted Total Income

Adjusted total income and AMT is computed in the following manner:


Particulars

Amount 

Total net income as computed under   the normal provisions of Income Tax Act 

XXX

ADD: Deduction under Chapter VI-A   from 80H to 80RRB except deduction under 80P 

XXX

ADD: Deduction under Section 10AA   (Deduction in respect of SEZ units) 

XXX

ADD: Deduction claimed under   Section 35AD reduced by regular depreciation allowed 

XXX

Adjusted total income 

XXX


How to calculate AMT?

As per AMT, the tax liability will be higher of the following: 

  • Tax liability computed as per the normal provisions of the Income-tax Law (applying applicable tax rate).
  • 18.5% on adjusted total income (plus surcharge and cess as applicable). The tax computed at the rate of 18.5% on adjusted total income (plus surcharge and cess as applicable) is called AMT. 

 

Note: AMT is levied at the rate of 9% in case of a non-corporate assessee’s unit is situated in an International Financial Services Centre and generates its income exclusively in convertible foreign exchange. Surcharge and cess will also be levied as applicable. (Applicable from Assessment Year 2019-20)


Let us understand calculation of AMT with an Illustration:

Illustration

The taxable income of Mr. Ranjan a resident individual aged 42 years for the year 2018-19 calculated as per the provisions of Income-tax Act is Rs. 26,40,000. The taxable income has been computed after deduction of Rs. 2,00,000 under section 80RRB in respect of royalty on patent. Will he be liable to pay AMT? What will be his tax liability for that financial year?

 

Ø As mentioned earlier, AMT calculation and usage only applies in cases where the tax payer has used deductions under section 80H to 80RRB (excepting section 80P), under section 35AD and under section 10AA. Further, the provisions of AMT shall also apply to an individual or a HUFs or a body of individuals(BOI) or an artificial juridical person(AJP) or an association of persons only if the adjusted total income exceeds Rs. 20,00,000. Hence, Mr. Ranjan has claimed a deduction under section 80RRB in respect of royalty on patent and his adjusted total income is exceeding Rs. 20,00,000 and thus the provisions of AMT will apply to him.

 

As per the provisions of AMT, the tax liability of Mr. Ranjan will be higher of the below: 

  • Tax calculated as per the normal provisions of the Income-tax Law (applying applicable tax rate).
  • 18.5% on adjusted total income (plus surcharge and cess as applicable). The tax computed at the rate of 18.5% on adjusted total income (plus surcharge and cess as applicable) is called AMT. 

 

Therefore, Tax on Rs. 26,40,000 as per applicable tax rates of an individual below 60 years of age for the AY 2019-20 works out to Rs. 6,04,500. Tax liability after health & education cess of 4% would work out to Rs. 6,28,680.

Adjusted total income will come to Rs. 28,40,000 (Rs. 26,40,000 + Rs. 2,00,000, i.e., deduction under section 80RRB). AMT at 18.5% on Rs. 28,40,000 will come to Rs. 5,25,400. AMT liability after health & education cess of 4% will come to Rs. 5,46,416.

In the given case, the liability as per the normal provisions of the Income-tax Act is more than the liability as per AMT and, hence, the tax liability of Mr. Ranjan will be Rs. 6,28,680.

 

Audit Report from Chartered Accountant

Assessee will be required to obtain a report from a chartered accountant certifying the computation of the adjusted total income and AMT in the Form No. 29C.

Such report will be furnished on or before the due date of filing of income tax return.

Tax Credit for Alternate Minimum Tax (AMT)

a. Alternate minimium tax (AMT) paid in excess of the regular income tax under the normal provisions of income tax act, will be available as credit against the subsequent tax liability.


b. The credit of AMT will be allowed to be carried forward and set off upto 10 succeeding financial years in which such credit becomes available.


c. AMT credit is allowed in the year in which regular tax > AMT.


d. The credit will be restricted to the difference between the regular income tax computed under normal provisions of income tax act and the AMT.

 

Let us understand AMT credit with an Illustration:

 

Illustration

The tax liability of a partnership firm XYZ Enterprises for the financial year 2018-19 under the normal provisions of the Income-tax Act is Rs. 19,40,000 and the liability as per the provisions of AMT is Rs. 19,00,000. It has brought forward AMT credit of Rs. 2,00,000. Can the firm adjust the AMT credit? Calculate the tax liability after adjusting AMT credit. 

 

Ø AMT credit is allowed in the year in which regular tax is more than AMT. In this case, the liability as per the normal provisions of the Income-tax Act is Rs. 19,40,000 and the liability as per the provisions of AMT is Rs. 19,00,000. As the tax liability as per the normal provisions of income tax act is more than liability as per AMT, thus the firm can adjust the AMT credit.

Ø Brought forwardof AMT credit shall be allowed in the following years to the limit of the difference between the tax on total income as per the normal provisions and the liability as per the AMT provisions. Thus, after adjusting AMT credit, the liability of the firm cannot be less than liability as per the provisions of AMT. In this case, the tax charge as per AMT is Rs. 19,00,000, and, hence, after claiming AMT credit, the firm cannot pay less than Rs. 19,00,000. Hence, out of the credit of Rs. 2,00,000 the firm can claim credit of Rs. 40,000 only and the balance credit of Rs. 1,60,000 can be carried forward to the subsequent years.