What is Alternate Minimum Tax (AMT)?

AMT or Alternate Minimum Tax in income tax is applicable at 18.5% to individual taxpayers (or a body of individuals), Hindu Undivided Families (HUFs), Limited Liability Partnership (LLP), artificial judicial person or associations of persons (AOPs), if the adjusted total income is over Rs. 20 lakhs. In case of a co-operative society, effective from AY 2023-24, AMT is applicable at a reduced rate of 15%, post the amendment in Finance Act, 2022.

Simply put, AMT is applicable to non-corporate taxpayers, if:

• Their adjusted income is more than Rs 20 lakhs, and
• They claim deductions under:
  • Section 80H to 80RRB (except 80P),
  • Section 35AD, and
  • Section 10AA.

However, taxpayers opting the new tax regime, under sections 115BAC or 115BAD, are not subject to AMT provisions, regardless of their income level.

Under Section 115JC of the Income Tax Act, the Alternate Minimum Tax (AMT) is not applicable to companies as well as those non-corporate taxpayers whose adjusted total income is less than Rs 20 lakhs and are not claiming deductions mentioned previously.

Also, if the assessee has opted the new tax regime (concessional tax regime) u/s 115BAC or 11BAD, they will be exempt of AMT.

Adjusted Total Income (ATI) is used to determine if the assessee should pay Alternate Minimum Tax (AMT) or not. AMT is calculated by adding back those deductions and exemptions that are claimed to reduce taxable income in normal tax years.

Deductions under the following sections are to be added back in the annual taxable income of the taxpayer to calculate AMT:

• Section 80H to 80RRB (except section 80P)
• Section 35AD
• Section 10AA

Once you add the deductions claimed under these sections of the Income Tax Act, 1961, you will arrive at the adjusted total income of the assessee. If it amounts to more than Rs 20 lakhs, AMT will be applicable.

Once we have calculated the Adjusted Total Income and have found that AMT provisions will be applicable, the next task is to calculate the tax liability under such provisions. To do so,

To find an AlternateMinimum Tax (AMT) under Section 115JC, begin with your pre-deduction income. Then add back deductions such as those under Chapter VI-A and Section 10AA to arrive at the Adjusted Total Income (ATI). If ATI is over Rs. 20 lakh, AMT is levied at 18.5%. Also, a 4% Health and Education Cess is levied over the amount of tax, thereby making the effective rate of tax come out to be around 19.24%.

Compare AMT with your ordinary tax—if AMT is greater, you will have to pay it. Any additional AMT paid may be rolled over for 15 years as a tax credit. This can be utilised in the future if your regular tax exceeds AMT in subsequent years.

Example

• Step 1: Begin with total income before deductions= Rs. 30 lakh
• Step 2: Add back tax deductions (Rs. 5 lakh under Section 80C & 80D)
• Step 3: Adjusted Total Income (ATI) = Rs. 35 lakh

As ATI is more than Rs. 20 lakh, AMT is applicable at 18.5%.

AMT Payable: 18.5% of Rs. 35 lakh = Rs. 6.475 lakh

This makes sure that even after deduction, high-income earners pay some tax.

Alternate Minimum Tax Credit (AMT Credit) permits taxpayers to carry forward AMT paid in excess in a year to adjust against future year regular tax liability. According to Section 115JD of the Income Tax Act, if the AMT provisions apply to a taxpayer and then pay the higher of normal tax liability or tax liability as per the AMT provisions, then the taxpayer will be eligible to claim AMT credit in the subsequent year(s). This credit can be claimed on the AMT paid in excess of the normal tax liability.

This credit is reversible for a maximum of 15 years. The objective is to prevent taxpayers who paid AMT in prior years from being overtaxed again, providing relief in future tax calculations.

Taxpayers on whom the AMT provisions apply, are required to obtain their AMT Report from their Chartered Accountant. In it, it should be certified by the CA that the calculations of Adjusted Total Income and the applicable tax (AMT), have been done as per the provisions of the Income Tax Act, 1961 and all the details are true to their knowledge. AMT report must contain the filled and duly signed Income Tax Form No. 29C. This Form 29C contains the details related to the calculation of Adjusted Total Income and AMT for the purpose of Section 115JC.

The below table illustrates the key sections and details mentioned in the applicable section of the AMT report:

As you can see, the AMT report can provide a simplified view of the tax dues, AMT credit, tax paid, etc. that are applicable to eligible taxpayers.

Section 115JC of the Act is crucial in Alternate Minimum Tax. It states that taxpayers subject to AMT should compute their adjusted total income and pay a tax of not less than 18.5%, irrespective of the exemptions they claim. The section provides assurance that individuals and businesses will pay an equitable amount of tax even if they claim exemptions to reduce their normal income tax.

Example:

• Total income (pre-deductions) = Rs. 30 lakh
• Deductions under Section 80C and 80D = Rs. 6 lakh
• Adjusted Total Income = Rs. 36 lakh

Here, if the normal tax liability is Rs. 5 lakh but AMT liability on adjusted income is Rs. 6.66 lakh, then the taxpayer would have to pay AMT of Rs. 6.66 lakh instead of regular tax. The amount of excess AMT paid can be forwarded as AMT credit against future tax.

While computing AMT under Section 115JC of the Income Tax Act, the following important sections need to be taken into account:

• Section 80C: Investment deductions in life insurance, PPF, EPF, etc.
• Section 80D: Deductions for premiums paid for health insurance.
• Section 10: Exemptions for agricultural income, long-term capital gains, etc.
• Section 80G: Deductions for donations made to charitable trusts.

For AMT purposes, all deductions allowed under these sections must be included in the overall income to calculate Adjusted Total Income (ATI). This is to ensure taxpayers who benefit from these deductions have a minimum tax burden.

Example:

• Total income (prior to deductions) = Rs. 30 lakh
• Deductions under 80C and 80D = Rs. 5 lakh
• Adjusted Total Income = Rs. 35 lakh

For taxpayers, it is important that they understand the Alternate Minimum Tax (AMT). This is particularly important for taxpayers with high deductions and exemptions. AMT makes sure that high-income individuals and corporations pay a minimum tax despite enjoying tax-saving provisions. By understanding AMT and its aspects, like the computation of Adjusted Total Income (ATI) and the computation of AMT Credit, taxpayers will be better positioned to budget their finances and minimise surprises. AMT knowledge will result in improved tax compliance and planning.