Brief Introduction

Alternate Minimum Tax or AMT as the name suggests, is an alternate tax that an assessee has to pay, subject to certain conditions, instead of the income tax liability which is computed as per normal provisions of the Income-tax law.

Alternate Minimum Tax is levied to impose higher tax liability on non-corporate assessees who have claimed various profit-link deductions or investment-linked deductions in the relevant previous year.

My answer is based on the Indian Income law i.e. Income Tax Act, 1961.

The concept behind Alternate Minimum Tax

Let’s start our discussion with MAT i.e. Minimum Alternative Tax. It applies to corporate entities or companies.

Before MAT, it was seen that companies used to declare huge dividends to their shareholders. But when it came to filing income tax returns, they used to claim various profit linked and investment-linked deductions to report very low profits and even losses to arrive at negligible tax or nil tax whereas their financial statements would report huge profits.

It is true that the government provides such profit linked or investment linked deductions to encourage business and investments, but it also needs a sufficient and regular flow of revenue in the form of tax to fund its expenditure.

Hence, to prevent misuse of deductions to evade taxes by corporates, government introduce Minimum Alternate Tax to charge such assessees a minimum rate of tax.

Alternate Minimum Tax is the same as Minimum Alternate Tax in terms of concept.  The provisions related to AMT are given under section 115JC of the Income Tax Act, 1961.

Scope of AMT as per section 115JC

Alternate Minimum Tax applies to all non-corporate assessees who claimed have claimed

• Deduction claimed if any under Chapter VI-A from section 80H to 80RRB except section 80P
• Exemption under section 10AA
• Deduction under section 35AD (Investment-linked deduction)

However, there is a threshold limit for certain non-corporates.

By non-corporate assessees we mean:

1. Individual
2. Hindu Undivided Family (HUF)
3. Firms (partnership firms)
4. Co-operative societies
5. Association of Persons (AOP)
6. Body of Individuals (BOI)
7. Artificial Juridical Person (AJP)
8. Limited Liability Partnership (LLP)

AMT is applicable to all except

• Individuals
• HUF
• AOP
• BOP
• Artificial Juridical Person

If their total adjusted income does not exceed Rs 20,00,000  in the previous year.

Therefore, AMT is applicable to all other non-corporate assessees like LLP, firms and cooperative societies irrespective of their total adjusted income.

Calculation of Alternate Minimum Tax

The rate of AMT is 18.5% of the adjusted total income. This adjusted total income and the AMT on it is calculated in the following manner:

The higher of the following becomes the tax liability of the assessee:

• Alternate Minimum Tax calculated on adjustment income plus surcharges u/s 87A (4% Health and education cess)
• Income Tax calculated on taxable income (as per normal provisions)

Numerical example

Mr X is a businessman who has earned the following income and expenditure in P.Y 2020-2021:  (Amount in Rupees)

Income from manufacturing business                             25,00,000

Interest on saving bank account                                               8,000

Dividend from ABC ltd                                                              10,000

Insurance premium paid                                                       1,00,000

Capital expenditure made as per section 35AD               5,00,000

Mr X  is eligible to claim a profit linked deduction of Rs 6,00,000.

Also, the depreciation allowed (other than under 35AD) as per Income-tax Act,1961 amounts to Rs. 3,00,000.

Following is his computation of both AMT and Income tax liability as per normal provisions.

TDS stands for Tax Deducted at Source

It is the tax deducted on certain incomes as specified under sections 192 to 194N of the Income Tax Act,1961 by the person who is responsible to pay such income.

For example, an employer is liable to deduct the TDS on the salary paid to the employee subject to the provisions of the Income Tax Act, 1961.

TDS is deducted either,

• at the time of payment

OR

• At time of credit to the account of the payee or at the time of payment; whichever is earlier

We know that Income tax liability is calculated after the income for a year is earned. In the next year, which is called the Assessment Year, income tax payable is calculated on the income earned in the Previous Year

For example:

Year 2021-2022 – This year (Previous Year) – Income is earned here.

Year 2021-2022 – Next Year (Assessment Year) – Income tax is assessed here.

But, the government collects the income tax from the income of the assessee in the Previous Year itself by the following ways:

1. TDS – Tax Deducted at Source
2. TCS – Tax Collected at Source
3. Advance Tax

Some of the most common sections are given below:

1. Section 192 – Salary
2. Section 194A – Interest other on securities deposits with the bank, post office etc) –  @10%
3. Section 194B and 194BB – Winning from lotteries, crossword puzzle – @30%
4. Section 194 – DA – Payment in respect of Life Insurance Policy – @5%.

So, according to sections 192 to 194N, some amount of income tax is deducted from the income of the assessee in the Previous Year itself.

In the Assessment Year, the assessee also gets a tax credit for the TDS i.e. the Income Tax liability gets reduced by the amount of Tax Deducted at Source in the Previous Year.