What is Alternate Minimum Tax (AMT)?

Understanding AMT

To grasp AMT fully, it’s important to understand its objective, who is covered, and which taxpayers are exempt. AMT ensures that tax benefits are not used to the extent of eliminating a person’s total tax liability.

Definition and Purpose of AMT

Alternate Minimum Tax was introduced under Section 115JC to 115JF of the Income Tax Act, 1961. It ensures that non-corporate taxpayers who claim deductions under Chapter VI-A (such as Section 80H, 80-IA, 80-IB, or 80-IC) or Section 10AA (for SEZ units) pay a minimum tax amount.

The purpose of AMT is similar to Minimum Alternate Tax (MAT) for companies — to ensure all entities contribute fairly, irrespective of tax incentives claimed.

Who is Eligible for AMT

AMT applies to:

• Individuals, HUFs, AOPs, BOIs, and partnerships claiming deductions under Chapter VI-A or Section 10AA.
• Limited Liability Partnerships (LLPs) are mandatorily covered under AMT, irrespective of income level.
• Taxpayers whose adjusted total income exceeds ₹20 lakh are subject to AMT provisions.

Who is Exempt from AMT

Certain taxpayers are exempt from paying AMT:

• Individuals, HUFs, AOPs, or BOIs with adjusted total income below ₹20 lakh.
• Taxpayers not claiming deductions under Chapter VI-A (Part C) or Section 10AA.
• Companies governed by MAT provisions (Section 115JB) are not covered under AMT.

AMT Credit

Like MAT for companies, AMT credit allows taxpayers to adjust excess AMT paid in future years when their regular tax liability exceeds AMT. This mechanism ensures fairness over multiple assessment years.

What is AMT Credit?

When a taxpayer’s AMT liability exceeds the regular income tax payable, the difference becomes AMT credit. This can be carried forward to future years and set off when regular tax surpasses AMT liability.

Example:
If AMT is ₹1,85,000 and regular tax is ₹1,20,000, the excess ₹65,000 becomes AMT credit, which can be adjusted in a future year when normal tax exceeds AMT.

How to Claim AMT Credit

AMT credit can be claimed by:

1. Calculating both AMT and normal income tax liability.
2. Determining the excess amount paid as AMT.
3. Reporting the same in Schedule AMT and AMTC while filing the income tax return.
4. Adjusting it in subsequent years when eligible.

The credit is claimed through the ITR-3, ITR-5, or ITR-6 forms, depending on the taxpayer’s entity type.

Carry Forward Mechanism and Period

Taxpayers can carry forward AMT credit for up to 15 assessment years from the year in which it was first earned. If not adjusted within that period, it lapses automatically.

For instance, AMT credit earned in FY 2024–25 (AY 2025–26) can be carried forward and used until AY 2040–41.

Conclusion

Alternate Minimum Tax (AMT) is a critical component of India’s tax structure that promotes fairness among taxpayers claiming deductions or exemptions. It ensures that all entities, whether individual or firm, pay a minimum share of tax based on adjusted total income.

By maintaining accurate records, calculating AMT correctly, and using AMT credit efficiently, taxpayers can optimize their tax liability without losing compliance benefits. Understanding AMT provisions is essential for effective tax planning , especially for LLPs and firms claiming Section 10AA or Chapter VI-A benefits.