What is Minimum Alternative Tax (AMT)

Introduction

Minimum Alternate Tax is the tax which is paid by companies that comes under the category of indirect tax. This tax helps to ensure that the none of the taxpayer who are earning a good amount of amount do not get a chance to avoid the liability of tax as result of any exclusions.

There are different types of taxes that are imposed by the Government of India from companies as well as individuals. Government of India is working continuously to make sure that no taxpayer who is earning a substantial profit can avoid the income tax payment. All such the taxes are payable by the organizations falling either under direct or indirect tax category. Minimum Alternate Tax (MAT) is a tax that is payable by the organization that are falling under the indirect tax category.

What is Minimum Alternate Tax (MAT)?

According to the provisions under Section 115JB the Minimum Alternate Tax Act, each company either domestic or foreign is liable to pay Minimum Alternative Tax. The aforesaid rule is applicable to make sure that no taxpayer earning substantial income can avoid the tax liability in respect of several credits, deductions or exclusions. Minimum Alternative Tax is imposed under the provision of the Income Tax Act of India, 1961.

For Example:

The concept of Minimum Alternative Tax can be better analyzed with the help of an example. There are various “zero tax companies” that are earning high amount of profits but are not paying taxes or nil taxes to their shareholders by rolling out the substantial dividends.  The NIL taxes comes due to several deductions, incentives and exemptions provided to them as a result of various conditions that can be met. However, the aim and objective of Minimum Alternative Tax is to make sure that no organization which has the capacity to pay taxes can avoid the income tax payment.

Eligibility for Payment of Minimum Alternate Tax 

Basically, the payment of Minimum Alternate Tax is meant for companies. However, the same is not applicable for individuals, partnership firms and Hindu Undivided Families (HUFs). The provisions contained under section 115JA are applicable to foreign companies which are depriving profits due to operation in India.

Features and Provisions of the Minimum Alternative Tax  Regime

Some of the significant and unique feature of Minimum Alternative Tax has been provided below;

Advance Payment of Tax

Under the provision of Income Tax Act, 1961, each taxpayer is needed to pay advance tax as calculated according to the tax liability. In case the tax liability is Rs.10,000 or  exceeds the same during a particular financial year. Likewise, all the companies which are liable for advance tax payment under the provisions of section 115JB of the Income Tax Act, 1961.

Minimum Alternative Tax Credit

Any company that is paying Minimum Alternative Tax under the clause of Minimum Alternative Tax rather than regular tax, then in case the tax paid excess of accrued and credited the same as tax credit to the company. Therefore, the Minimum Alternative Tax credit can considered as a difference between calculated tax under the provisions of the Income Tax Act and tax calculated under the provisions of Minimum Alternative Tax Act.

Such excess of tax credit can be carried forward and set-off in the particular financial year in which the company is eligible to pay taxes under the provisions of the Income Tax Act, 1961. This Minimum Alternative Tax credit can also be carried forward and set-off for upcoming 10 assessment years succeeding the year in which the accruance of the tax credit.

Example

The concept of Minimum Alternative Tax can be better analyzed with the help of an example. For example, a company named M/s XYZ books for a profit of Rs. 10 lakh. After claim of all applicable exemptions, deductions and depreciation, the gross taxable income comes to Rs.4 lakh.

Applicable income tax in the aforesaid case will be 30% of Rs.4 lac = Rs.1, 20,000

However, Minimum Alternative Tax applicable will be 18.5% of Rs.8 lac = Rs. 1, 85,000

Thus the excess amount of payable tax will be Rs.1, 85,000 – Rs. 1, 20,000 = Rs. 65, 000

This excess amount of Rs. 65,000 is eligible to be carried forwarded and set-off against regular tax that are payable in future.

Minimum Alternative Tax Report

All companies which are liable for the payment of Minimum Alternative tax have to provide Minimum Alternative Tax report as per prescribed in Form 29B. The aforesaid report must be submitted along with the filing of ROI.

Applicability of Minimum Alternative Tax in Special Economic Zones (SEZs)

Initially, the Minimum Alternative Tax was administered by the Government, the directives of Minimum Alternative Tax is not applicable for the companies who are earning their profits via business operations and activities in the Special Economic Zones or SEZs. However, the aforesaid law was amended in the year 2011 for the inclusion of companies carrying on business activities or operations in Special Economic Zones or SEZs and earning substantial profits from the business in the Special Economic Zone, under the provision of Section 115JB for Minimum Alternative Tax payment.

Future of Minimum Alternate Tax (MAT) in India

As a result of the nature of the Minimum Alternative Tax, the government has been facing a lot of heat and various suggestions of the changes or amendments to make section 115JB which has to be more inclusive and flexible. Recently, the Government of India has announced the formation of the committee for the examination of the ways to resolve the issues that are arising due to Minimum Alternative Tax payment. Currently, the scope of Minimum Alternative Tax Committee seems to be limited and is solely focused on the Minimum Alternative Tax resolution to be place by the Government of India on the foreign institutional investors.  The reason of the same is that over the last few months various foreign investors have been served notices regarding the payment of the Minimum Alternative Tax. However, the efforts made by the Government of India with regard to the payment of Minimum Alternative Tax as more controlled and holistic.