MAT (Minimum Alternate Tax) and AMT (Alternate Minimum Tax) are provisions within the Income Tax Act 1961, aimed at ensuring that companies and specific taxpayers with substantial Income but reduced taxable Income (due to deductions or exemptions) furnish a minimum amount of tax. While MAT concerns companies, AMT is relevant for non-corporate taxpayers, such as individuals and LLPs, who claim fixed deductions. Observance of MAT and AMT rules ensures the pursuit of tax laws, shows financial transparency, and avoids penalties.
The AMT standards are crucial for individuals, although the MAT criteria are advantageous for companies. This article explores the essential questions involved in assessing MAT and AMT and their differences.
Overview of AMT with Regard to Income Tax
An extra tax termed as the Alternative Minimum Tax (AMT) may be disbursed rather than regular taxes. The present AMT rate is 18.5% (besides applicable surcharge and cess). When the tax on normal Income is less than the alternative minimum tax on modified total Income in a given FY (financial year), the alternative minimum tax (AMT) is utilized to “adjusted total income.” Consequently, individuals who are liable to AMT rules need to pay AMT apart from their regular tax duties.
Allowance for AMT (Alternative Minimum Tax)
The AMT rules concern every non-corporate taxpayer who has asserted a deduction under sections 80H through 80RRB (without 80P), (ii) section 35AD, or (iii) section 10AA. A non-corporate taxpayer who has not asserted any deductions under the abovementioned sections is, thus, exempt from the AMT liabilities. However, regarding this, you should bear the following things in mind.
Any other person (i.e., one who is not an individual, an AOP/BOI, Hindu Undivided Family (HUF), or an artificial juridical person), irrespective of their income, falls under the AMT requisites.
Only if their adjusted total income (enumerated below) surpasses INR 20,00,000 are associations of persons, Hindu undivided families, individuals, bodies of persons (whether incorporated or not), and artificial juridical persons governed by AMT.
An assessee who has gained from the tax benefits offered by sections 115BAC and 115BAD is also exempt from the AMT requirements.
Overview of MAT with Reference to Income Tax
It is likely for a taxpayer, similar to a company, to have profited over the year yet still be able to utilize different aspects of the income tax law to reduce their tax liability or even evade paying any taxes entirely (like deductions, exemptions, depreciation, and the like).
Multiple tax breaks and incentives offered by Income-tax legislation help “zero-tax companies”-those that make adequate book profits and disseminate sizable dividends—become incorporated into the tax net through MAT.
Since its commencement, the rules underlying MAT have undergone many revisions, and they currently apply against businesses as per section 115JB.
Applicability of MAT and AMT
To comprehend MAT and AMT, it is vital to recognize their applicability to businesses and citizens.
Applicability of AMT
- Section 80H deduction to Section 80RRB.
- Subsection 35AD deduction.
- Subsection 10AA deduction.
A non-corporate entity that has not claimed the conclusions above is not liable under the AMT rules.
The AMT rules pertain to different people who are required to take their Income into account. For example, when the adjusted total sum surpasses $20,000, AMT rules apply to an individual, a relative of an individual, a Hindu Undivided Family, a fictitious juridical person, or a group of individuals.
Applicability of MAT
As per Section 115JB of the Income Tax Act, an organization needs to deposit MAT if the tax that must be expended on the organization’s total income, as exhibited in the provisions of Income Tax in any year, is lower than 15% of its book profit plus an additional charge (surcharge) besides health and education cess. Both the private and public sectors can utilize MAT.
In the event of any one of the following, MAT is invalid:
- A delivery income that adheres to tonnage taxation is exempt from MAT, as per Section 115 V-O.
- Any income obtained from the life insurance sector is exempt from MAT, as mentioned in Section 115JB (5A).
Moreover, MAT is inapplicable to an assessee of a foreign country who belongs to any of the specified categories:
- If an assessee lives in a designated area or in a country with which India has an agreement, or in case the Central Government has been offered an understanding under Section 90A. (1).
- If the assessee is a citizen of a country that does not have diplomatic relations with India and if the assessee is exempt from legal registration requisites.
- Whenever the terms of an agreement offer that the assessee must possess a permanent foundation in India.
- Foreign companies whose entire revenue includes earnings from undertakings stated in Sections 44BB, 11AB, 44BBB, or 44BBA.
Differences Between MAT and AMT
| MAT | AMT |
| Tax charged on companies | Tax charged on entities other than companies |
| Tax rate – 15% (plus cess and surcharge applicable) on Book profit [9% (plus surcharge and cess applicable) in the event of a company being a unit of an International Financial Services Centre and drawing its income only in convertible foreign exchange] | Tax rate – 18.5% [plus cess and surcharge applicable] in case of a non-corporate assessee being a unit situated in the International Financial Services Centre and sourcing its income only in convertible foreign exchange] |
| Not applicable on: Domestic companies governed u/s 115BAA or 115BAB of the Income Tax Act, 1961 [If the company prefers lower tax @22% valid from A.Y.2020-21, then it will be unable to set off MAT credit carried forward from earlier years] Income of company from Life Insurance business u/s 115B of the Income Tax Act, 1961 Shipping company running under tonnage taxation | Not applicable on: Individual/ AOP/ HUF/ BOI/ Artificial Juridical Person when the adjusted total income does not cross Rs 20 lakhs |
| When is MAT charged? When the income tax (plus cess and surcharge) computed on the total income calculated according to Income Tax Act provisions is below 15% of the book profit + cess + surcharge | When is AMT charged? When the income tax (plus cess and surcharge) is estimated on total income computed according to Income Tax Act provisions, it is under 18.5% of the adjusted total income + cess + surcharge |
| MAT credit can be brought forward for 15 years. It will cease after this period | AMT credit can be carried forward for 15 years. It will terminate after this period |
| How do you avail yourself of and use MAT credit? Bring forward MAT credit to future years and set off the brought forward credit in the year in which the standard tax liability is greater than the MAT liability. Sum to be set off = Normal liability for that year – MAT liability for that year. The remaining MAT credit following set-off can be further brought forward in the upcoming years | How can you use AMT credit? Bring forward AMT credit to future years and set off the carried forward credit in the year in which the general tax liability exceeds the AMT liability. Sum to be set off = Standard liability for that year – AMT liability for that year. The AMT credit remaining following set-off can be further brought forward to future years |
| Concept of MAT credit – A company needs to pay the higher of the standard tax liability or the MAT liability. So, the tax disbursed over and above the regular tax liability in case of MAT is permitted as a credit in the coming years. MAT credit = MAT liability – Regular tax liability | Concept of AMT credit – A person, apart from a company, needs to pay a higher standard tax liability of AMT. Thus, the tax reimbursed over and above the regular tax liability in the event of AMT is permitted as a credit in the coming years. AMT credit = AMT liability – Normal tax liability |
| Report – A company served under MAT provisions needs to get a report from a Chartered Accountant in practice in Form-29B, whereby it is endorsed that the book profit computed for MAT is as per Section 115JB of the Income Tax Act, 1961. The report should be acquired on or before the due date of submitting the Income Tax Return | Report – A Person governed by AMT provisions needs to get a report from a practicing Chartered Accountant in Form-29C, whereby it is verified that the adjusted total income computed for AMT and AMT liability is as per Section 115JC of the Income Tax Act, 1961. The report should be received on or before the due date for submitting the Income Tax Return. |
Bottom Line
The Income Tax Act includes measures like the Minimum Alternate Tax (MAT) and Alternative Minimum Tax (AMT) that ensure taxpayers who gain from different exemptions and deductions are not exempt from paying a minimum amount of tax. Individual taxpayers and businesses are both liable to the alternative minimum tax. Although the AMT requirements are for people, the MAT rules are applicable to companies. AMT and MAT concepts are often used interchangeably, which in simple language can sound confusing for non-professionals. However, observance is mandatory and can benefit the assesses in managing their healthy portfolio.
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