The Shocking Alternative Minimum Taxes in India (2024)

All of you must know very well that taxation is such a source for any country, due to which the overall structure of the country can be built, and India is no exception.

Over the last few years, our country, India’s taxation system has seen many changes to meet the evolving economic scenario. One such change was made in our country, India, with the introduction of Alternative Minimum Tax (AMT).

The Government of India designed the Alternative Minimum Taxes (AMT) to ensure that individuals, companies and other entities pay the minimum tax amount very easily even if they avail of many tax benefits and deductions that can reduce their taxable income to a negligible level.

Therefore, we believe that it is very important for every individual company and other entities living in India to understand Alternative Minimum Taxes so that they can contribute to the development of the country and improvement of the financial economy.

This is the main reason why we are presenting this blog post to all of you so that you can get a comprehensive guide about Alternative Minimum Taxes and you can know about it and its every aspect like history, objectives, its impact on taxpayers and more.

The Alternate Minimum Tax (AMT) is 18.5 per cent of the adjusted total income, plus any applicable surcharge and cess. The AMT is applicable when the tax on ordinary income is less than the tax on adjusted total income. In such cases, taxpayers to whom the provisions of AMT apply must pay the AMT amount even if the ordinary tax amount is higher.

{Full form of AMT (Alternative Minimum Taxes)}

What are Alternative Minimum Taxes?

The concept of Alternative Minimum Taxes (AMT) prevents all the taxpayers in our country from making excessive use of tax benefits in order to reduce their overall tax liability to zero or a very small amount.

Alternative Minimum Taxes (AMT) is specifically levied only on Associations of Persons (AOP), Individuals, Hindu Undivided Families (HUF) and all other Companies.

In our country, India, Alternative Minimum Taxes were introduced under the Finance Act 2011, due to which the old concept of Minimum Alternative Tax (MAT) for non-corporate entities has been wholly replaced.

Wherever MAT is applied to companies, the principle of Alternative Minimum Taxes (AMT) has been extended by the Government of India to other entities and individuals.

What is the Comparison of AMT Alternative Minimum Taxes and MAT Minimum Alternative Taxes?

Although the main motive of both Alternative Minimum Taxes (AMT) and Minimum Alternative Taxes (MAT) is to ensure that the taxpayer contributes the minimum tax amount to the government within the given time period, So we have provided you all with a table to show the difference:

What are the Objectives of Alternative Minimum Taxes (AMT)?

Although there are many objectives of Alternative Minimum Taxes, we have described all its objectives, which are very important to understand:

• Ensuring Minimum Tax Contribution: Alternative Minimum Taxes (AMT) was basically introduced to the public so that all individuals, Hindu Undivided Families (HUFs) and other non-corporate entities who claim all other important taxes still contribute a minimum amount of tax to the Government of India.
• Widening the Tax Base: By imposing a minimum tax on all types of high-income earners and entities with large deductions, the Alternative Minimum Taxes (AMT) helps to assure that the tax base is broadened and the tax burden is fairly distributed.
• Preventing the Tax Base: The Alternative Minimum Taxes (AMT) discourages the excessive use of tax breaks, deductions, and incentives that might otherwise allow some taxpayers to reduce or eliminate their individual tax liabilities substantially.
• Promoting equity in Taxation: The AMT significantly enhances fairness in the tax system by more closely targeting taxpayers who disproportionately benefit from tax relief while also ensuring that individuals with high incomes or significant exemptions pay all the taxes they owe.
• Boosting Government: Alternative Minimum Taxes (AMT) helps our country Indian Government a lot in increasing the total tax revenue contributed by taxpayers by a huge amount which otherwise gets very less due to various exemptions and deductions.

What is the Alternative Minimum Tax Applicability?

Alternative Minimum Tax Applicability is applicable only to all individuals, HUFs, AOPs, and companies residing in the country of India.

However, there are several specific limitations and conditions under which Alternative Minimum Taxes (AMT) can be applied very quickly, which we have explained to you in detail:

• For Individuals, HUFs, and AOPs: AMT can be applied in India only when the adjusted total income of the taxpayer exceeds Rs 20 lakh in a financial year (FY). And the adjusted total income is calculated by adding certain deductions and exemptions to the regular total income.
• For Companies: Alternative Minimum Taxes (AMT) is applicable only on those companies which are never subject to MAT and includes all the companies which are eligible for profit-linked deduction under Chapter VI-A of the Income Tax Act, to understand this let us take some examples like companies engaged in infrastructure development, power generation and other specified activities.
• Exemption from AMT: While AMT is applicable everywhere, it is not applicable to certain entities such as charitable trusts, political parties and specified funds. Additionally, individuals, HUFs and AOPs with adjusted total income of Rs 20 lakh or less are exempted from AMT.

What are the Exemptions from Alternative Minimum Tax (AMT)?

There are some Exemptions from the Alternative Minimum Tax (AMT) in India include the following:

• Individuals and HUFs with Lower Adjusted Income: Alternative Minimum Taxes (AMT) will not apply to individuals, Hindu Undivided Families (HUF), association of persons (AOP) and group of persons (BIO) if their combined total income does not exceed Rs 20 lakh in a financial year.
• Eligible Startups: Under the Startup India initiative, a scheme launched by the Government of India, certain startups are provided exemption from AMT but the startups are required to fulfil specific criteria laid down by the Government such as turnover limit and compliance with the conditions under section 80-IAC of the Income Tax Act.
• Non-Corporate Entities without Specific Deductions: Alternative Minimum Taxes (AMT) can only be applied to non-corporate entities if they claim any specific deductions or exemptions such as under Section 10AA, 80H to 80RRB, or other tax relief sections. Then, entities that do not claim these deductions can very easily be given exemption from AMT.
• Foreign Companies: Alternative Minimum Taxes (AMT) cannot generally be applied to all foreign companies which may be liable to tax under multiple provisions of the Income Tax Act, for example through special rates applicable to their income.

How is Adjusted Total Income Calculated?

We know very well that many aspects have to be taken into consideration to calculate an adjusted total income and alternative minimum tax, so we have explained its complete calculation procedure to you in a table below:

The table above offers a practical, step-by-step guide to calculating your adjusted total income and the corresponding AMT payable. It’s based on a hypothetical scenario, making it easy to apply to your own situation.

How is Tax Calculated under Alternative Minimum Tax (AMT)?

It is essential to know about the calculation of Tax under all the provisions of Alternative Minimum Taxes (AMT); hence we have described its overall procedure below:

What is the Tax Credit?

Alternative Minimum Tax (AMT) was introduced not just to collect taxes from zero taxpayers but also to ensure a steady flow of revenue to the government.

Alternative Minimum Tax (AMT) was introduced not just to collect tax from zero taxpayers but also to ensure a steady flow of revenue to the government. Also, since AMT is much higher than the limited taxes in a financial year, it is essential for a taxpayer to pay AMT.

In the coming years, if the regular tax rate increases beyond Alternative Minimum Taxes (AMT), then the AMT already paid may be increased further by our country’s government. And it will be set off against the regular tax payable.

Set-off is allowed up to the difference between regular tax and AMT, providing taxpayers with the flexibility to manage their tax liabilities. Any remaining balance can be carried forward to future years, a concept known as Alternative Minimum Taxes (AMT) credit.

The AMT credit can be carried forward for 15 years after the financial year in which the AMT was first paid. Importantly, a taxpayer is not required to pay any interest on this credit, providing a sense of relief from additional financial burdens.

If there is any revision in the regular taxes due to any order issued by the Income Tax Department of our country, then the AMT credit will also be adjusted accordingly.

Additionally, if any taxpayer residing in India has any foreign tax credit (FTC), then any FTC amount in excess of the AMT will be ignored.

What are the Conditions of Claiming of AMT Credit?

The overall conditions for claiming AMT credit are given below in the following manner:

• There are high chances that AMT credit can be adjusted against a tax payer for up to 15 assessment years.
• No interest will be payable on AMT credit during this overall time period.
• If there is any change in the regular income tax or AMT due to any order of the Income Tax Act, then the credit under section 115JD can be adjusted.

Every taxpayer resident in India can avail of his carry-forward AMT credit in any financial year where his total adjusted income, after allowing deductions under section 10AA, section 35AD, or Chapter VI-A, is Rs 20 lakh or less.

In Conclusion 

Alternative Minimum Taxes (AMT) in our country India were very necessary to ensure that taxpayers with significant income, who benefit from various deductions and exemptions, contribute a minimum amount of tax to the Government of India.

AMT has broadened our country’s tax base significantly, has also streamlined our taxation system to a great extent, has enhanced compliance and has greatly impacted many investment decisions.

As there is a lot of borrowing to be seen in the Indian landscape, it is very important for all tax payers to be aware of the latest developments in AMT provisions and engage in effective tax planning to manage their tax liabilities.

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