This article examines the nuances and intricacies of Minimum Alternate Tax and Alternate Minimum Tax in detail.
Minimum Alternate Tax (MAT) & Alternate Minimum Tax (AMT) is a concept of taxation that is appropriate for organizations and individuals paying tax. The standards of MAT are appropriate for organizations and the standards of AMT are relevant for individuals. Mat Vs Amt Minimum Alternate Tax And Alternative Minimum Tax
Objective of Levying MAT
Certain organizations before the MAT provisions were introduced were benefiting from different assessment exceptions, deductions, depreciation reliefs, and so forth to reduce or to keep away from tax payments despite already having benefits. To put an end to this, The Finance Act, of 1987 launched MAT or Minimum Alternate Tax, to ensure that all companies pay tax.
Provisions of MAT
MAT provisions require that an organization’s base tax obligation will be higher of the following:
- The typical tax liability of an organization as determined by the ordinary provisions of the Income-tax law, by which the assessable sum will be the tax rate pertinent to the organization.
- Tax determined at 15% on book profit, plus additional charge and cess.
This sort of tax assessment is termed as MAT.
Minimum Alternate Tax Applicability
As indicated by Section 115JB of the Income Tax Act, MAT must be submitted by an organization if the tax must be paid on the total income, which is determined as expressed in the provisions of Income-tax in any year, is under 15% of its book-profit + extra charge (surcharge) + health and education cess. MAT is applicable to both the private and public sectors.
MAT is not valid in the following conditions:
- According to Section 115JB (5A), MAT is not applicable to any income that is obtained from the life insurance industry.
- According to Section 115 V-O, MAT is not applicable to a delivery income that is accountable for tonnage taxation.
Moreover, MAT is not relevant to an assessee of an overseas nation who comes under any of the following classifications:
- In case an assessee is an inhabitant of a nation or in a predefined region with whom India has an understanding or if the Central Government has received an understanding under Section 90A(1).
- When the assessee does not have a permanent foundation in India as indicated by the provisions of the agreement.
- In case the assessee is an occupant of a nation with whom India does not have an understanding according to proviso (I) and if the assessee does not require registration under any law.
- Foreign firms whose total income consists of profits gained from businesses as referenced in Section 44AB, 44BB, 44BBA or 44BBB.
MAT Credit
Section 115JAA gives the provisions to carry forward and alter MAT credit. In case an organization pays tax under MAT, at that point the organization is approved to guarantee MAT credits in the next years. During the count of Foreign Tax Credit (FTC), in case MAT sum surpasses such FTC, at that point such excess sum is disregarded.
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Adjustment of Carrying Forward MAT Credit
MAT credit can be used by an organization in the upcoming years. These credits can be balanced in the year when the standard risk is more than the MAT liability. The set-off relating to carried forward
MAT credit is allowed in the upcoming years as per the distinction between the tax on total pay and the arrangements of MAT. In fact, MAT credit can be carried forward for 15 years after which the credit gets lapsed. There is no interest paid to citizens on such credit.
Provisions of AMT
Non-corporate citizens are entitled to AMT provisions in a personalized model. At the end of the day, MAT is relevant for organizations and AMT is relevant to individuals. The AMT arrangements are determined under Sections 115JC to 115JF.
AMT Applicability
The AMT provisions are relevant to each citizen who has claimed the following:
- Deduction under Section 80H to 80RRB.
- Deduction under Section 10AA.
- Deduction under Section 35AD.
AMT provisions are not relevant to a non-corporate that has not claimed the above findings.
The AMT provisions are pertinent to other individuals not considering their income into account. For instance, AMT provisions are relevant to an individual, a Hindu Undivided Family, a relative of individuals or a group of people or to a fake juridical individual when the adjusted total sum is more than ₹ 20,00,000.
AMT Rate
For non-corporate citizens, the AMT collected will be 18.5% of the balanced total pay including extra charges and cess. For non-corporate assessees, the AMT collected will be 9% when a unit is situated in International Financial Services Centre and is picking up salary in convertible foreign exchange including additional surcharge and cess.
AMT Credit
According to the provisions of AMT, non-corporate citizens under AMT provisions need to adhere to a higher standard of tax legal responsibility. In case a citizen pays liability as per AMT, at that point the citizen is approved to claim credit in the upcoming years for the AMT paid more than the ordinary tax liability.
During the calculation of Foreign Tax Credit (FTC), on the off chance that the sum surpasses such FTC, such excess sum is overlooked.
Report from Chartered Accountant
Companies adhering to Section 115JB must obtain a Form No. 29B report from a chartered accountant. This report confirms that the book profit calculation complies with Section 115JB requirements. The report should be secured before the income tax return’s due date and must be filed electronically.
Exemption from Applicability of AMT
The provisions for Alternate Minimum Tax (AMT) do not apply to certain taxpayers if their annual income is less than ₹20,00,000. These taxpayers include:
- Individual taxpayers
- Hindu Undivided Families (HUF)
- Associations of Persons (AOP)
- Bodies of Individuals (BOI)
- Artificial Juridical Persons
This exemption is based on the monetary threshold of adjusted total income. However, it is important to note that this exemption does not extend to Limited Liability Partnerships (LLPs), partnership firms, or other non-corporate assessees. For these entities, AMT provisions apply regardless of their income levels.
Calculation of Adjusted Total Income
Adjusted total income and AMT is arrived in the following manner:
| Particulars | Amount (in Rs) |
| Taxable income as per normal provisions after all deductions (A) | XXXXX |
| Add: Deduction claimed if any under Chapter VI-A from 80H to 80RRB except 80P (B) | XXXXX |
| Deduction claimed if any under Section 10AA (C) | XXXXX |
| Deduction claimed if any under Section 35AD reduced by regular depreciation allowed (D) | XXXXX |
| Adjusted total income (E) = (A)+(B)+(C)+(D) | XXXXX |
| AMT – 18.5% of (E) | XXXXX |
Computation of Tax Liability When AMT Provisions are Applicable
| Particulars | Amount (in Rs) |
| Tax liability computed as per normal provisions of the Income-tax Act – normal tax liability | XXXX |
| AMT computed at 18.5% (plus applicable surcharge and cess) on adjusted total income | XXXX |
| Tax liability of taxpayer | Higher of the above |
Claiming of AMT Credit
- The tax credit can be carried forward for a maximum of 15 assessment years. During this period, no interest is payable on the accumulated credit
- The credit under Section 115JD is subject to variation if there are changes in the amount of normal income tax or any Alternative Minimum Tax (AMT) due to any orders issued under the Income Tax Act,1961
- This means that if there are adjustments to the tax liabilities based on such orders, the tax credit amount under Section 115JD may also be adjusted accordingly.
Adjustment of Carrying Forward AMT Credit
AMT credit can be used by non-corporate citizens in the following years. These credits can be balanced in the year when the ordinary liability is more than the AMT liability. The set-off relating to carried forward AMT credit is allowed in the set time frame as per the distinction between the tax on absolute pay and the provisions of AMT.
The AMT credit can be conveyed forward for 15 years after which the credit lapses. No interest is paid to the citizen during the credit duration.
The Takeaway
If you wish to make use of the MAT and AMT provisions under the Income Tax Act get help from the experts at Vakilsearch right away! Never miss an ITR or pay more than your minimum tax liability with the help of expert tax consultants.
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