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Levy of Alternate Minimum Tax (AMT) on all persons claiming profit-linked deductions, other than companies [Chapter XII-BA–Sections 115JC to 115JF] under Assessment of Other Entities – Income Tax

Levy of Alternate Minimum Tax (AMT) on all persons claiming profit-linked deductions, other than companies [Chapter XII-BA–Sections 115JC to 115JF] under Assessment of Other Entities :

(i) The Finance Act, 2011 had introduced the concept of AMT in relation to LLPs and accordingly
the LLPs were subject to AMT @ 18.5% of adjusted total income.
(ii) Though the concept of Alternate Minimum Tax (AMT) was similar to MAT in case of corporates, however, the tax base in the case of LLPs was the adjusted total income computed as per the Income-tax Act, 1961 and not the book profit computed after making the specified adjustments to the profit as per the profit and loss account prepared in accordance with Schedule VI to the Companies Act, 1956.

(iii) The Finance Act, 2012 extended the levy of AMT to certain persons other than companies, in order to widen the tax base vis-à-vis profit-linked deductions. Accordingly, any person other than a company, who has claimed deduction under any section (other than section 80P) included in Chapter VI-A under the heading “C – Deductions in respect of certain incomes” or under section 10AA would be subject to AMT with effect from A.Y.2013-14 [Section 115JEE(1)].

The provisions of AMT would, however, not be applicable to an individual, HUF, AOP, BOI, whether incorporated or not, or artificial juridical person, if the adjusted total income of such person does not exceed Rs 20 lakh [Section 115JEE(2)].

Investment-linked tax deduction claimed under section 35AD also falls within the scope of alternate minimum tax.

(iv) Accordingly, where the regular income-tax payable by a person, other than a company, for a previous year computed as per the provisions of the Income-tax Act, 1961 (other than Chapter XII-BA) is less than the AMT payable for such previous year, the adjusted total income shall be deemed to be the total income of the person. Such person shall be liable to pay income-tax on the adjusted total income @ 18.5% [Section 115JC].

(v) “Adjusted total income” would mean the total income before giving effect to Chapter XII – BA as increased by the deductions claimed, if any, under –

(1) any section (other than section 80P) included in Chapter VI -A under the heading “C – Deductions in respect of certain incomes”;

(2) section 10AA; and

(3) section 35AD, as reduced by the depreciation allowable under section 32, as if no deduction under section 35AD was allowed in respect of the asset for which such deduction is claimed.

(vi) Such persons to whom this section applies should obtain a report in the prescribed form from a Chartered Accountant certifying that the adjusted total income and the AMT have been computed in accordance with the provisions of this Chapter. The report has to be furnished on or before the due date of filing of return under section 139(1).

(vii) Section 115JE specifically provides that “save as otherwise provided in this Chapter, all other provisions of this Act shall apply to a person referred to in this Chapter”. Hence, all other provisions relating to self-assessment under section 140A, advance tax, interest under sections 234A, 234B and 234C, penalty etc. would also apply to a person who is subject to AMT. Tax credit for AMT [Section 115JD]

(viii) AMT paid in excess of the regular income-tax payable under the provisions of the Incometax Act, 1961 for the year would be eligible for credit to be carried forward and set -off against income-tax payable in the later year to the extent of excess of regular income-tax payable under the provisions of the Act over the AMT payable in that year. The balance tax credit, if any, shall be carried forward to the next year for set-off in that year in a similar manner.

(ix) AMT credit can be carried forward for set-off upto a maximum period of 10 assessment years succeeding the assessment year in which the credit becomes allowable.

(x) No interest shall, however, be payable on such tax credit.

(xi) If the amount of regular income-tax or AMT is reduced or increased as a result of any order passed under the Income-tax Act, 1961, the amount of tax credit allowed under section 115JD would also vary accordingly.

Tax Credit allowable even if Adjusted Total Income does not exceed Rs 20 lakh in the year of set-off [Section 115JEE(3)]

The credit for tax paid under section 115JC shall be allowed in accordance with the provisions of section 115JD, notwithstanding the conditions mentioned in sub-section (1) or (2) of section 115JEE. Hence, even if the assesee has not claimed any deduction under section 10AA or section 35AD or Chapter VI-A in any previous year and the adjusted total income of that year does not exceed Rs 20 lakh, it would still be entitled to set-off his brought forward AMT credit in that year.

Related Provisions

(i) Correspondingly, under section 140A, for determination of self-assessment tax payable, tax credit claimed to be set-off in accordance with section 115JD has also to be reduced.

(ii) Such tax credit allowed to be set-off in accordance with the provisions of section 115JD has to be reduced from the amount of tax on total income determined under section 143(1) or on regular assessment, on which interest under section 234A is leviable for default in furnishing return of income.

(iii) Similarly, section 234B levies interest for default in payment of advance tax, to enable reduction of tax credit under section 115JD while computing “assessed tax”.

(iv) Likewise, in section 234C levying interest for deferment of advance tax, such tax credit under section 115JD has to be reduced for computing “tax due on the returned inco me”.

Illustration
Mr. Rajesh has income of ` 45 lakhs under the head “Profits and gains of business or profession”. One of his businesses is eligible for deduction@100% of profits under section 80 – IB for A.Y. 2016-17. The profit from such business included in the business income is Rs 20 lakhs. Compute the tax payable by Mr. Rajesh, assuming that he has no other income during the P.Y.2015-16.

Solution
Computation of regular income-tax payable under the provisions of the Act

Particulars Rs
Profits and gains of business or profession 45,00,000
Less: Deduction under section 80-IB 20,00,000
Total Income 25,00,000

 

Tax payable Rs
Up to Rs 2,50,000 Nil
10% on next Rs 2,50,000 25,000
20% on next Rs 5,00,000 1,00,000
30% on balance Rs 15,00,000 4,50,000
  5,75,000

Computation of Alternate Minimum Tax (AMT)

Particulars Rs
Total Income as per the Income-tax Act, 1961 25,00,000
Add: Deduction under section 80-IB 20,00,000
Adjusted Total Income 45,00,000
AMT = 18.5% × 45,00,000 = 8,32,500

Since the regular income-tax payable as per the provisions of the Act is less than the AMT, the adjusted total income of Rs 45 lakhs would be deemed to be the total income of Mr. Rajesh and he would be liable to pay tax@18.5% thereof. The tax payable by Mr. Rajesh for the A.Y.2016-17 would, therefore, be Rs 8,32,500 plus education cess@2% and secondary and higher education cess@1%, totaling Rs 8,57,475.

Mr. Rajesh would be eligible for credit to the extent of Rs 2,65,225 [Rs 8,57,475 – Rs 5,92,250 (i.e., Rs 5,75,000 + 3% cess)] to be set-off ithe year in which tax on total income computed under the regular provisions of the Act exceeds the AMT. Such credit can be carried forward for succeeding 10 assessment years.

Illustration 10
Mr.X, carrying on the business of operating a warehousing facility for storage of sugar, has a total income of Rs 80 lakh. In computing the total income, he had claimed deduction under section 35AD to the tune of Rs 70 lakh on investment in building (on 1.4.2015) for operating the warehousing facility for storage of sugar. Compute his tax liability for A.Y.2016-17.

Answer

Particulars Rs in lakh
Tax liability under the normal provisions of the Income-tax Act, 1961 22.25
Add: Education cess and SHEC@3% 0.67
Total tax liability 22.92
Adjusted Total Income Rs in lakh  
Total Income   80.00
Add: Deduction under section 35AD 70.00  
Less: Depreciation under section 32 [10% of Rs 70 lakh] 7.00 63.00
Adjusted Total Income   143.00

 

Particulars Rs in lakh
AMT@18.5% 26.46
Add: Surcharge@12% (since adjusted total income > Rs 100 lakh 3.18
  29.64
Add: Education cess and SHEC@3% 0.89
Tax liability under section 115JC 30.53
Since the regular income-tax payable is less than the AMT payable, the adjusted total income of Rs 143 lakhs shall be deemed to be the total income of Mr.X and tax is payable@18.5% thereof plus surcharge@12% and cess@3%. Therefore, the tax liability is Rs 30.53 lakhs.  
AMT Credit to be carried forward under section 115JD  
Tax liability under section 115JC 30.53
Less: Tax liability under the regular provisions of the Income-tax Act, 1961 22.92
  7.61

 

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