Applicability of Alternate Minimum Tax

 All the non-corporate income tax payers are supposed to be paying AMT. The rule for applicability is that the AMT is payable if:

Tax under normal Provisions (as per income tax act) is less than AMT.

In this case the adjusted total income is considered to be the total income and tax liability is calculated over it.

The other rule mentions that the AMT will not be paid by the individual, HUF (Hindu Undivided Family), AOP (Association of Persons) and Artificial Juridical Person if the Adjusted Total Income is not greater than Rs.20 lakhs.

Non-Applicability to LLP’s incorporated under foreign Law

Limited Liability Partnerships incorporated under foreign laws are not considered “Firm” as per the definition given under section 2(23) and are considered under the definition given in section 2(17). So, the provisions of AMT are not applicable to such LLPs.

Applicability to foreign firms not incorporated under any Foreign Law

Foreign firms which are not incorporated as per the foreign country law but fits into the definition of “firm” as per Indian Partnership Act,1932 is considered firm as under section 2(23). So, the provisions of AMT as per chapter XII-BA are applicable to such firms. The Alternate minimum tax liability is as per section 115JC for the income to be chargeable to tax under India.

Rate

The applicable rate of AMT is 18.5%, which is calculated on Adjusted Total Income. Further, the final AMT is calculated by calculating education and secondary education cess of 3% on 18.5% and surcharge if applicable. Surcharge is not applicable for LLP. A Table containing steps is included in annexure along with an illustration. The steps and illustration are given in Annexure- I and II respectively.

As per the provisions of AMT, the final tax liability for the non-corporate assessees is greater of the tax as per normal provisions and Alternate Minimum Tax (Tax @ 18.5 percent (plus secondary and education cess as applicable) on adjusted total Income).

Alternate Minimum Tax Credit

Tax credit is available against future tax liability if AMT is greater than tax under normal provisions. The credit amount is the difference between the two and can be adjusted or carried forward for ten years from the year in which the credit was earned. From the assessment year 2018-19, the period will be fifteen years.The section applicable is 115JD. Set-off is available when the tax as per normal provision for LLP is more than AMT. The amount of set-off is limited to amount paid in excess of AMT. However, the rules regarding carry forward or set-off are not applicable for education and secondary education cess. Further, if the credit is not utilised within ten years then it can’t be availed later on. Interest is not paid on tax credit availed.

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Application of other Provisions of this Act

The provisions are given under section 115JE and are applicable to the non-corporate assessee to whom AMT provisions apply. This section includes advance tax, interest as per sections 234A,234B and 234C penalty.

Key points with respect to the New Chapter XII-BA

  • Finance Bill,2011 was to tax limited Liability Partnership in a different manner. The rule was applicable to LLP’s which claimed deduction as per chapter VI-A(C) or Section 10AA of the Income tax act,1961. It was introduced particularly for the LLP’s claiming income based deductions only. Key Points you should know.
  • This chapter entailed some key terms, which are explained as follows:
  1. Regular Income Tax

This is the income tax as under normal provisions, that is, according to the tax rate applicable to the particular assessee as per income tax act,1961. Uptil this calculation, no effect of Chapter XII-BA is given. This is defined under section 115JF(d).

  1. Adjusted Total Income

Adjusted Total Income is explained under section 115JC (2). Adjusted total income is calculated over the normal tax calculated for the LLP & non-corporate assessee and further giving the effect of Chapter XII-BA provisions. These adjustments include following (given under section 115JEE (1)), which are added to the normal tax:

  • Deductions under Chapter VI-A, which are deductions on certain incomes (Section 80HH to 80RRB except 80P)
  • Deduction as per section 10AA, applicable in special economic zones.
  • Deduction under 35AD which is reduced by the depreciation amount as per section 32.
  • Deductions, particularly applicable on LLPs include the following sections: 10AA, 80IA, 80IAB, 80IB, 80IC, 80ID, 80JJA, 80LA and 80Q.
  1. The assessee claiming deduction under section 35AD (with effect from 1st april,2015) cannot claim deduction under the following sections- 80IA, 80IB, 80IC and 80ID. Such an assessee does not have to pay AMT.
  2. When Alternate, Minimum Tax is calculated, then the concept of brought forward loss and unabsorbed depreciation are taken into account and set-off for them is as per the Income Tax Act,1961.
  3. If a company is converted to a Limited Liability Partnership form of organisation, then the MAT credit, which the company earned is not allowed to be set-off against AMT.

Assessee’s Responsibility

The assessees falling under the provisions of this act are required to prepare a report consisting of the details and calculations & basis of adjustments done for computation of the tax liability to the CA. The books of account and relevant records pertaining to the documents regarding the furnishing of the deductions claimed under sections applicable under these sections. The information is to be further filled in form 29(C). The details of the report and form are explained as under.

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Report

A certificate and a report regarding calculation of adjusted total income and alternate income tax, is required to be furnished before the due date of filing return as per section 139(1). The report is certified from a Chartered Accountant. The provisions for this are given under section 155JC (3). Form no. applicable is 29(C).

According to the guidelines form ICAI, this report consists of three paragraphs:

  1. First paragraph should consist of the declaration about the examination of accounts and records of non-corporate assessee in order to arrive at adjusted total income and the AMT.
  2. Second paragraph should consist of certification of calculation of adjusted Total Income and AMT and the tax payable as per 115JC.
  3. The third paragraph should consist of expression of the opinion that the particulars furnished in Annexure – A of form 29(c) are accurate and true.

Form

The form under section 29(C) requires the assessee under this act to furnish the following items:

  1. “Name of the Assessee
  2. Address of the Assessee
  3. Permanent Account Number
  4. Assessment Year
  5. Total Income of the Assessee in the manner mentioned under Income Tax Act.
  6. Income Tax payable on total income computed under point 5.
  7. Deduction amount as per Part C, Chapter VI-A (except section 80P).
  8. Deduction amount as per section 10AA.
  9. Adjusted total Income (5+7+8).
  10. AMT (19.055% of Adjusted Total Income)
  11. If Tax on total income is > AMT, then AMT is considered as Not Applicable (N.A) in column 10
  12. If Tax on total income is < AMT, then AMT is mentioned in column 10 (If any cess is applicable then it should be increased by cess).”

Reasons

In the year 1969, around 155 tax payers were saving taxes or paying almost nothing to the government by using deductions and tax breaks. So, AMT was introduced with the objective to reduce the incidences of tax savings by the higher income groups. But over the years it has reached to the middle-income groups as well. This is attributed to inflation as AMT is said to have never adjusted for inflation, so if income increased overtime for an assessee, it landed them in the AMT bracket.

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Chapter XII-BA was introduced to save revenue that arose when a company converted to LLP. This was basically done to take advantage of tax exemptions and rationalization of taxation. According to the provisions of Income Tax Act,1961, tax neutrality was provided in case of a conversion of a company to a Limited Liability Partnership. The transaction is not subject to capital gains if certain conditions are fulfilled. There was a possibility of tax saving.

Advantage which was available to LLP

Before the proposition of provisions of AMT, LLP was considered a tax saving form of organization as Minimum Alternate Tax and Dividend Distribution Tax. So, the companies used to convert to LLP for the benefits. The benefits are explained as under and analysis is done based on that.

Benefits

  • LLP are not levied surcharge and DDT. Capital gains are not attracted when the assets are transferred from a company to LLP. This helps in saving tax.
  • Companies have an increased cost of maintenance of the statutory records which comes under the minimum compliance level. But LLPs does not have incur any such costs as there are no compliances to be fulfilled in terms of maintenance of records or the meetings.
  • There is no limit on the number of partners in LLP.
  • All the assets, movable and immovable are automatically vested in LLP and no stamp duty is applicable.
  • Other benefits of LLP include the following- Government intervention is restrictive, easier to wind-up and audit is required to be done only in case of aggregate contribution more than Rs.25 lakhs and turnover greater than Rs.40 lakhs.

Advance Tax

Advance tax is to be paid as per provisions 115JE and interest is attracted if there is failure to pay it. If the assessee has income under the head PGBP on presumptions applicable as per section 44AD and 44ADA, he/she is not allowed to claim profit linked deductions. So, if the tax payer falls under the bracket of those claiming deduction under section 10AA or under Chapter VI-A, then adjusted total income will be increased by such amounts as well.

Difference between MAT (Minimum Alternate Tax) and AMT (Alternate Minimum Tax)

MAT

AMT

Applicable on Companies

Applicable to non-corporates

Section 115JB

Section 115JC

Calculated on book profit

Calculated on adjusted total income

Effective tax rate is 19.5%

Effective tax rate is 19.05%

 


Taken from the Income Tax Department document

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