The income tax department in India introduced the alternative minimum tax (AMT) for taxpayers that are not companies while the minimum alternate tax (MAT) is meant for companies. The government ensured that taxpayers that are not companies paid the minimum tax as part of the AMT. In addition, it offered the choice of carrying the AMT credit forward and adjusting it in subsequent years.
When a person’s (other than a company’s) regular income tax payment for a prior year is lower than the alternate minimum tax payment for that same year, the modified total income is deemed to be that person’s total income. They are then responsible for paying income tax at 18.5%, following Section 115JC on that total income.
In cases when the amount of regular tax due is less than the amount owing under the AMT, the Alternate Minimum Tax (AMT) is expected, according to section 115JD of the Income Tax Act. AMT credits are available for any discrepancy between the tax paid by a regular taxpayer and the AMT.
The tax credit amount may be taken off and held forward until the 15th assessment year after the inspection year in which it was granted. Any financial year may allow the use of such a tax credit to the proportion of the excess of ordinary income tax higher than the tax due under the terms of the AMT.
Section 115JD Income Tax Act: Tax responsibility if AMT applies
The following would result in a more extensive tax liability if the provisions of the alternative minimum tax were to apply:
- Tax Obligation following the Income Tax Act’s standard provisions: After deducting Chapter VI-A expenses, determine the taxpayer’s total income from all sources of revenue. Determine the amount of tax due based on the total amount of payment and the current slab rates.
- Calculate the taxpayer’s adjusted total income to estimate the amount of tax due based on the AMT rate. Determine the 18.5% tax liability based on the adjusted total income.
Section 115JD Income Tax Act: AMT’s applicability
The following classification of taxpayers is subject to the regulations of the Alternative Minimum Tax:
- If a household, HUF, AOP (Association of Persons), or BOI (Body of Individuals) has an adjusted total income that exceeds Rs 20 lakh.
- Any other user is other than the company, regardless of overall revenue.
- Only if the following conditions apply to the taxpayers in the category mentioned above:
- The taxpayer claims a reduction following Sections 80H and 80RRB (except Section 80P)
- Under Section 35AD, the taxpayer requests a deduction.
- According to Section 10AA, the taxpayer requests a deduction.
Section 115JD Income Tax Act: Exemption from supplemental minimum tax
The following are exempt from the restrictions of the alternative minimum tax:
- Any assessee is a human being, a member of the Hindu Undivided Family (HUF), an association of people (AOP), a body of people (BOI), or an artificial juridical person.
- Anyone who is an assessee and a corporate taxpayer.
- Any taxpayer with a total adjusted income under Rs 20 lakhs.
Section 115JD Income Tax Act: Credit for 7 sections
For the financial year 2022–23, which corresponds to the assessment year 2023–24, the revised portion of section 115JD is in effect.
Section 115JD(1)
A person who paid taxes under Section 115JC is entitled to a credit for those taxes paid in line with the rules under this section.
Section 115JD(2)
The excess of the alternate minimum tax paid above the ordinary income tax payable for a confident assessment year is what will go toward the tax credit under subsection (1):
The amount of tax credit admissible against the regular income tax the assessee must pay will be considered. It calculates the credit amount under this sub-clause if it surpasses the amount of tax credit that is appealable against any income tax paid in any country or stipulated territory outside of India under sections 90, 90A, or 91, which is permitted against the alternate minimum tax payable.
Section 115JD(3)
The payers shall pay no interest on the tax credit granted under subsection (1).
Section 115JD(4)
The tax credit amount decided under subsection (2) shall be carried forward and offset in conformance with the regulations of subsections (5) and (6). Still, such a carry-ahead shall be permitted up to the fifteenth appraisal year directly following the assessment year for which the tax credit becomes allowable under subsection (2).Â
Section 115JD(5)
In any assessment year, when the regular income tax is higher than the alternate minimum tax, the tax credit may be set off to the extent of the difference between the regular income tax and the alternate minimum tax. With any remaining tax credit, if any, being carried forward.
Section 115JD(6)
As a result of any order made according to this Act, the amount of regular income tax or the alternate minimum tax may be lowered or raised. It shall also affect the amount of tax credit permitted under this section.
Section 115JD(7)
If a person has used the option mentioned in section 115 BAC or section 115 BAD, the rules of this section do not apply to them.
Section 115JD Income Tax Act: Tax calculation
Calculation steps for taxes where the provisions for the alternative minimum tax apply:
Step 1: Calculate the non-corporate assessee’s standard income tax liability while ignoring the requirements of Sections 115JC to 115JF.
Step 2: Calculate the non-corporate assessee’s adjusted total income.
Step 3: Apply 19.24% (18.5% + 4% Cess) or 22.126% (18.5% + 15% Levy + 4% Cess) to the adjusted total income determined in step 2 (if the adjusted total revenue is higher than Rs 1 crore but less than Rs 2 crore). It will calculate the alternate minimum tax.
Step 4: Compare the tax obligation calculated in Step 1 with the alternative minimum tax calculated in Step 3. The Alternate Minimum Tax rules will not apply if the sum calculated in Step 1 is higher than, equal to, or greater than the sum calculated in Step 3.
Step 5: The non-corporate assessee will be deemed to have a tax due for those previous years if the amount calculated under Step 1 is less than the amount calculated under Step 3. In this instance, the difference between the amounts calculated under Steps 1 and 3 will be available as a credit that can be carried forward and applied to the non-corporate assessee’s ordinary tax liability for the next year or years.
Section 115JD Income Tax Act: Making an AMT credit claim
AMT was implemented to recoup taxes owed by corporations that pay no taxes and to ensure a steady stream of revenue for the general treasury. In an FY, minimal tax is therefore charged when regular tax is lower than AMT. However, in the following FYs, if AMT is lower than the average tax, AMT paid in a prior FY may be carried forward and deducted from the average tax to the extent of the discrepancy between standard and AMT. It may carry over any balance remaining after such a set-off to the next fiscal years (FYs). The term “AMT Credit” refers to this idea. The prerequisites for obtaining AMT credit are shown below.
- The credit should begin and last for the whole fifteen assessment years.
- There cannot be any interest charged on such credit.
- If an order made according to the Income Tax Act modifies the amount of ordinary income tax or any AMT, the tax credit under Section 115JD may adjust accordingly.
- After obtaining a deduction under provision 10AA, section 35AD, or chapter VI-A, the assessee must offset any bought-forward AMT credit throughout the financial year, even if the total net income does not exceed Rs 20 lakhs.
Section 115JD Income Tax Act: How are my tax credits handled?
You do not owe any AMT, but you can still be subject to its effects in other ways if the computation on Form 6251: Alternative Minimum Tax reveals that your Tentative Minimum Tax is less than your regular tax.
Business credits
Your eligibility for tax credits like work opportunities or low-income housing credits may be limited due to the AMT.
Except for the energy credit, your Tentative Minimum Tax restricts these credits and the majority of other general business credits. These credits cannot bring your tax bill below your Tentative Minimum Tax.
Suppose you possess any of these credits, typically the result of a corporate entity or a transaction. In that case, you should review Line 2 of Form 6251 to determine what you may do to lower your Tentative Minimum Tax and permit more credits. Any unapproved general business credit can be carried forward 20 years and back two years.
SEE also: TDS on salary under Section 192 of income tax act
Section 115JD Income Tax Act: How much AMT will be exempted in 2022?
The AMT exemption amount regularly increases each year in line with inflation. Similar to a standard deduction, the AMT exemption determines the alternate minimum tax.
These are the exemption amounts for 2022:
- Individual taxpayers: Rs 75,900
- Joint returns for married taxpayers: Rs 118,100
- Married people who file separately: Rs 59,050
- Household Head: Rs 75,000
See also: Section 143(2) of Income Tax Act
Section 115JD Income Tax Act: Reporting Obligation
All taxpayers to whom the AMT provisions apply must obtain a report from a chartered accountant certifying that adjusted total income and the AMT have been computed per the Income-tax Act’s provisions in Form No. 29C and provide the statement on or before the deadline for filing the return of income. Along with an income tax return, you can file reports electronically.
Am I required to pay advance tax if I pay tax under Section 115JC?
Yes, provisions of advance tax are applicable to assessees paying the AMT under Section 115JC.
Is AMT applicable to companies?
The AMT is applicable to all assessees except companies.
When is AMT not applicable?
- The provisions of AMT does not apply to the following assessees:
- Assessees who does not claim deduction under section 10AA, 35AD, 80H to 80RRB (except 80P).
- Adjusted total income of the assessee (Individual/HUF/AOP/BOI/Artificial juridical person) is less than or equal to 20 lakh.
- People who has exercised the option to pay tax under concessional tax scheme under section 115BAC and 115BAD.
FAQs
What is the AMT rate in an IFSC (International Financial Services Centre) where the assessee is located?
When the assessee is located in an IFSC, AMT is applied at 9% rather than 18.5%.
Are businesses subject to AMT?
All assessees, except for businesses, must pay AMT.
What is the furthest period that I can carry AMT credit forward to?
For 15 years, you can carry over the AMT credit before expiring. Regarding such a credit, the taxpayer is not paid any interest.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
