Introduction:

One of the Indian Government’s main revenue streams stems from taxes paid by individuals, companies, and other entities. In efforts to curb tax evasion and foster compliance, the government offers various exemptions and deductions to taxpayers. Nevertheless, a handful of companies have exploited these provisions, effectively becoming zero-tax entities.

Therefore, to deal with this issue, Alternate Minimum Tax (AMT) was introduced under Section 115JD of the Indian Income Tax Act in order to balance taxation of tax-free and tax-exempt corporations procedure for eligible deduction This matter will be dealt with further in the details of Section 115JD, 2016 .

Section 115JD:

Section 115JD of the Income Tax Act deals with cases where the regular tax rate is insufficient to pay the Alternative Minimum Tax (AMT). In such cases, the AMT credit is used to offset the difference between the standard taxpayer’s tax and the AMT.

Section 115JD  provides relief to  taxpayers holding accumulated long-term capital gains (LTCG) who aim to exchange their capital assets for new ones. Furthermore, this section enables taxpayers to claim tax credits for the taxes paid on LTCG, subject to specific conditions being met.

Provisions Of Section 115JD:

• The various provisions under section 115JD apply. For the financial year 2023-24, corresponding to the assessment year 2024-25, these policies are stated as follows.
• Section 115JD(1) allows persons whose tax liability has been paid under section 115JC to claim a tax credit as provided in this section.
• Section 115JD(2) stipulates that any surplus paid as alternate minimum tax beyond the regular income tax liability for a given assessment year shall augment the tax credit referenced in subsection (1).
• Under section 115JD(3), no interest shall be charged on tax credits under sub-section (1).
• In Section 115JD(4), the tax credit amount calculated is carried forward and utilized in accordance with the guidelines set forth in subsections (5) and (6). Nonetheless, this carry-forward is restricted to the initial fifteen assessment years following the assessment year for which the tax credit was granted under the subsection (2).
• Section 115JD(5) allows the credit to be applied to any taxable year in which the taxable income exceeds the applicable minimum tax rate. The loan can cover the difference between the regular tax rate and the minimum rate, and any excess can be carried forward.
• Section 115JD(6) stipulates that any modification to the regular income tax or alternate minimum tax amount, as per orders issued under this Act, will also affect the tax credit eligibility under this section.
• Section 115JD(7) states that individuals who choose to pay tax under the new regime as per section 115 BAC(1A), along with co-operative societies under the  sections 115BAD or 115BAE are exempt. Additionally, they are ineligible for tax credits under section 115JD.

Tax Rate Under the Section 115JD:

• The tax rates under the  Section 115JD are provided .
• If the  total income exceeds Rs. 1 crore, firms or cooperative societies are subject to a tax rate of 21.5488% (comprising a tax of 18.5%, a surcharge of 12%, and a cess of 4%).
• For total incomes up to Rs. 1 crore, the alternate minimum tax applicable, inclusive of surcharge and cess, is 19.24% for both cooperative societies or firms and non-cooperative assesses. This comprises a tax rate of 18.5% with an additional 4% cess.

Applicability:

• The following table shows the application of section 115JD of the Income Tax Act, 1961, governed by AMT rules.
• Regardless of the total revenue generated by a business, it remains distinct from any other entity.
• If a taxpayer claims deduction under sections 80H and 80RRB (other than section 80P).
• If a taxpayer claims a deduction under Section 35AD.
• This condition only applies to taxpayers who fall into the aforementioned categories.
• When the aggregate adjusted income surpasses Rs 20 lakh for households, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), or Bodies of Individuals (BOIs).

Tax calculation:

• Steps for calculating taxes when the provisions for the alternative minimum tax are applicable:
• Compute the standard income tax liability for non-corporate assesses, disregarding the provisions outlined in Sections 115JC to 115JF.
• Determine the adjusted total income of the non-corporate assessee.
• Compute the adjusted total income of the non-corporate taxpayer.
• Apply 19.24% (18.5% + 4% cess) or 22.126% (18.5% + 15% levy + 4% cess) to the adjusted gross income determined in step 2, as income all the adjustments fall between Rs 1 crore and Rs 2 a crore. This will calculate the alternative minimum tax.
• Compare the tax liability calculated in Step 1 with the alternative minimum tax computed in Step 3. The rules for Alternative Minimum Tax won’t be applicable if the amount calculated in Step 1 is higher than, equal to, or greater than the amount calculated in Step 3.
• If the amount calculated in Step 1 is lower than the amount calculated in Step 3, the non-corporate assessee will be considered to owe taxes for those prior years. In such cases, the variance between the amounts determined in Steps 1 and 3 will be eligible as a credit, which can be carried forward and utilized to offset the non-corporate assessee’s regular tax liability for the subsequent year(s).

Section 115JD Benefits:

• Section 115JD provides various benefits to companies that plan to merge or separate. These benefits include:
• The provision safeguards against the loss of tax benefits for the amalgamating or demerged company resulting from the amalgamation or demerger. It allows for the carry-forward and set-off of accumulated losses and unabsorbed depreciation against the income of the amalgamated or resulting company, facilitating the utilization of tax advantages.
• Section 115JD encourages companies to pursue mergers or demergers by providing relief from the tax burden associated with accumulated losses and absorbed losses.
• This provision aids in mitigating the tax liability of the amalgamated or resulting company. By allowing the carry-forward and set-off of accumulated losses and unabsorbed depreciation against the income of the amalgamated or resulting company, it effectively reduces the taxable income and consequently lessens the tax liability.
• The section 115JD provisions protect the continuity of the business during the merger or dissolution. They enable accumulated losses and unrealized depreciation to be carried forward and offset against the income of the retained entity or derivative, thus reducing and checking taxes to see that the operation is uninterrupted.

Conclusion:

Section 115JD of the Income Tax Act  enables the carry-forward and set-off of companies undergoing amalgamation or demerger schemes. It outlines specific conditions for these provisions, aimed at mitigating the impact on companies undergoing such restructuring while ensuring the preservation of their losses and unabsorbed depreciation.