Alternate Minimum Tax

Alternate Minimum Tax (AMT) is a parallel tax calculation mechanism designed to ensure that taxpayers—especially high-income individuals, companies, or other entities—pay at least a minimum level of tax to the government. It works as a safeguard against tax avoidance strategies that exploit various deductions, exemptions, incentives, or credits under the regular tax system

Example of AMT Calculation Let’s consider an Individual taxpayer who claims several tax deductions. Income and Deductions Details Particulars Amount (₹) Gross Total Income 20,00,000 Deductions under Section 80-IA/80-IC (eligible for AMT add-back) 8,00,000 Normal deductions (allowed) 2,00,000

Step 1: Regular Tax Calculation Taxable income under normal rules: ₹20,00,000 − ₹2,00,000 = ₹18,00,000 Assume the regular tax liability on ₹18,00,000 is: ₹3,20,000 (approx., including cess)

Step 2: AMT Calculation Under AMT, certain deductions like 80-IA/80-IC are added back. Adjusted Total Income (ATI): ₹20,00,000 − ₹2,00,000 + ₹8,00,000 = ₹26,00,000 AMT Rate (for individuals) = 18.5% + cess → Effective approx. 19% AMT liability: 26,00,000 × 19% ≈ ₹4,94,000

Step 3: Compare Both Tax Liabilities Basis of Tax Tax Amount (₹) Regular Income Tax 3,20,000 AMT (Minimum) 4,94,000 Since AMT is higher, the taxpayer must pay ₹4,94,000.

Step 4: AMT Credit The extra tax paid due to AMT: ₹4,94,000 − ₹3,20,000 = ₹1,74,000 (AMT Credit) This amount can be carried forward for 15 years and set off in future years when: Regular tax liability becomes greater than AMT

Final Outcome Result Amount (₹) Final tax payable ₹4,94,000 AMT credit carried forward ₹1,74,000