Alternate Minimum Tax – Tax Liability & Planning for Individuals

Last Updated at: Jul 13, 2020
tax liability
Alternate Minimum Tax – Tax Liability & Planning for Individuals
In Budget 2013, the government should provide an enabling environment to Micro, Small and Medium Enterprises by reconsidering tax provisions. Industry body CII has asked the government to consider rolling back alternate minimum tax imposed on companies, mainly on small and medium units, saying the tax provision is adversely affecting the commercial viability of small businesses.


In order to widen the tax base, the government had imposed 18.5 percent AMT, a variant of Minimum Alternate Tax (MAT), on sole proprietorships and partnership firms. Industry body CII has asked the government to consider rolling back alternate minimum tax imposed on companies, mainly on small and medium units, saying the tax provision is adversely affecting the commercial viability of small businesses.


If you are a part of a company, an unincorporated association or a Joint Hindu family, you require paying alternate minimum tax at the end of every assessment year. The prime objective of presenting the alternate minimum tax is to promote the fulfilment of taxes without delay. You can set-off the AMT credit only if the normal tax liability against that year arises.

It is said nothing in the world is more certain than death, and taxes. The provision of Alternate Minimum Tax in some ways is evidence of the certainty of taxes. The Income Tax Act provides for taxing individuals who have earned income, however, when the income includes certain deductions, lowering the overall tax payable, a levy is applicable known as Alternate Minimum Tax, which can be claimed as a credit against tax payable at a later assessment year. You will get to know more carbon credits from here. Let’s see more about alternative minimum tax India, alternate minimum tax rate, alternative minimum tax applicability, etc

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Applicability – Only Non-Corporate Assesses

The Alternative Minimum Tax provision is applicable only on non-corporate assesses, meaning thereby that only individuals, body of persons or an unincorporated association, Hindu Undivided Family are required to pay the alternate minimum tax.

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What is the advantage of paying Alternate Minimum Tax?

The basic purpose behind introducing Alternate Minimum Tax is to promote tax compliance. Thus, even in those years where the Assessee has earned income but the same also includes deductions and exempted income. A tax at a pre-specified rate is payable, which is available for use as credit. In the subsequent years, if there is any income on which tax at regular rates is payable, it can take to set-off the tax payable for that year, thereby lowering the higher tax liability in the future.

As the individual starts earning more and falls in a higher tax bracket, while exhausting the maximum available deductions, the Alternate Minimum Tax credit can reduce the tax payable and thus, lower the net tax liability.

So, when is Alternate Minimum Tax really applicable?

There are two essential conditions for the provisions of Alternate Minimum Tax to be applicable:

  • There are deductions and exemptions to your overall total income: Chapter VI A of the Income Tax enlists several kinds of payments which, by virtue of their social impact are eligible for deduction. These include amounts paid for insurance of the family. Additionally, interest on loan taken for the education of children. Further, interest earned on savings, royalty income, etc. Moreover, it also includes an exemption for income that is from units in the Special Economic Zone (Section 10 AA). Additionally, eligible deductions for investment and asset purchases in the specified business.
  • The total income is the income taken after adding the above applicable deductions and exemptions from the total income. If the income so derived exceeds the amount of 20 lac rupees, Alternate Minimum Tax will become payable.

The tax payable would be higher of the normal tax payable on the income, or 18.5 percent of the adjusted total income, whichever is higher. Thus, when the income computes as a result of normal tax slabs is higher. It is not Alternate Minimum Tax but the regular tax that becomes payable. In cases where Alternate Minimum Tax is higher, the excess between regular tax and Alternate Minimum Tax becomes available as credit.

What is the rate at which Alternate Minimum Tax is payable?

For the assessment year 2018-19, the rate of Alternate Minimum Tax is 18.5 percent of the total income adjust.

The concessional rate for units in International Financial Service Centres applicable from Assessment year 2019-20

If a non-corporate Assessee, that is an individual operates in an IFSC, which are specialized areas established by the government to enhance business from financial services. The unit derives income in convertible foreign exchange, the amount of Alternate Minimum Tax payable is 9 percent.

Period available for Alternate Minimum Tax credit

The Alternative Minimum Tax credit can be set off only against those years in which the normal tax liability arises. The credit is available for a period of 15 subsequent years.

With AMT, you can make substantial savings from the net tax liability even when your level of income increases. You will not have to pay more when you fall under the category of higher taxes. After deduction and exemptions from your total income, if the amount exceeds rupees 20 lacs, then you are liable to pay the AMT.

Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.