MAT vs AMT

Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) are provisions introduced in the Income Tax legislation to ensure that taxpayers who avail of various deductions and exemptions do not escape the liability to pay at least a minimum amount of Income Tax. Alternate taxation is a taxation concept that is applicable to both companies and individual taxpayers. The norms of MAT are applicable for companies whereas, the norms of AMT are applicable for individuals. This article briefly discusses the provisions of Minimum Alternate Tax and Alternate Minimum Tax.

Objective of Levying MAT

Certain companies before the introduction of MAT provisions were availing various tax exemptions, deductions, depreciation, etc. to reduce or to avoid tax payments despite having profits.  To put an end to this, The Finance Act, 1987 introduced MAT or Minimum Alternate Tax, to make sure all companies pay at least a minimum amount of Income Tax.

Basic Provisions of MAT

MAT provisions specify that a company’s minimum tax liability will be higher of the following:

• The normal tax liability of a company calculated according to the normal provisions of the Income-tax law, by which the taxable amount will be the tax rate applicable to the company.
• Tax calculated at 18.5% on book profit, including surcharge and cess. The amount of taxation determined in accordance with this calculation is called MAT.

MAT Applicability

According to Section 115JB of the Income Tax Act, MAT has to be remitted by a company if the tax has to be paid on the total income, which is calculated as stated in the provisions of Income-tax in any year, is less than 18.50% of its book-profit+surcharge (SC)+health and education cess. MAT is applicable to both the private and public sectors. However, MAT is not applicable in the following circumstances:

• According to Section 115JB(5A), MAT is not applicable to any income that is acquired from life insurance businesses.
• According to Section 115 V-O, MAT is not applicable to a shipping income that is responsible for tonnage taxation.

MAT is not applicable to an assessee of a foreign country who comes under any of the following categories:

• If the assessee is a resident of a country or in a specified territory with whom India has an agreement or if the Central Government has adopted an agreement under Section 90A(1), and when the assessee does not have a permanent establishment in India according to the provisions of the agreement.
• If the assessee is a resident of a country with whom India does not have an agreement as per clause (i)  and if the assessee does not require registration under any law.
• Foreign companies whose total income includes profits gained from businesses as mentioned in Section 44AB, 44BB, 44BBA or 44BBB.

MAT Credit

If a company pays tax under MAT, then the company is authorized to claim MAT credits in the following years. Section 115JAA provides the provisions to carry forward and adjust MAT credit. During the calculation of Foreign Tax Credit(FTC), if the MAT amount exceeds such FTC, then such excessive amount is ignored.

Adjustment of Carried Forward MAT Credit

The MAT credit is utilized by the company in the forthcoming years. These credits can be adjusted in the year when the normal liability is more than the MAT liability. The set-off pertaining to brought forward MAT credit is permitted in the forthcoming years in accordance with the difference between the tax on total income and the provisions of MAT.

Period of Carry Forward

The MAT credit can be carried forward for a period of 15 years after which the credit undergoes a lapse. There is no interest paid to the taxpayer during such credit.

Report From Chartered Accountant

Every company that abides by the provisions of Section 115JB has to acquire a report from a chartered accountant in Form No. 29B. This form guarantees that the book profit has been calculated according to the provisions of Section 115JB. The report has to be obtained on or before the due date of filing the income return. Form no. 29B of the audit report must be filed electronically.

Basic Provision of AMT

The non-corporate taxpayers are entitled to AMT provisions in a modified pattern. In other words, MAT is applicable for companies and AMT is applicable to individuals. The AMT provisions are specified in Sections 115JC to 115JF.

AMT Applicability

The AMT provisions are applicable to every taxpayer who has claimed the following:

• Deduction under Section 80H to 80RRB.
• Deduction under Section 35AD.
• Deduction under Section 10AA.

The AMT provisions are not applicable to a non-corporate who have not claimed the above deductions.

• The AMT provisions are applicable to an individual, Hindu undivided family, an association of people or body of individuals or to an artificial juridical person when the adjusted total income is more than Rs. 20,00,000.
• The AMT provisions are applicable to other individuals not taking their income into account.

AMT Rate

For non-corporate taxpayers, the AMT levied will be 18.05% of the adjusted total income including surcharge and cess. For non-corporate assessee, the AMT levied will be 9% when a unit is located in International Financial Services Centre gaining income in convertible foreign exchange including surcharge and cess.

AMT Credit

As per the provisions of AMT, all non-corporate taxpayers under AMT provisions have to pay a higher normal tax liability. If a taxpayer pays liability according to AMT, then the taxpayer is authorized to claim credit in the following years for the AMT paid more than the normal tax liability. For the purpose of calculation of Foreign Tax Credit(FTC), if MAT amount exceeds such FTC, then such excessive amount is ignored.

Adjustment of Carried Forward AMT Credit

The AMT credit is utilized by non-corporate taxpayers in the forthcoming years. These credits can be adjusted in the year when the normal liability is more than the AMT liability. The set-off pertaining to brought forward AMT credit is permitted in the forthcoming years in accordance with the difference between the tax on total income and the provisions of AMT.

Period of Carry Forward

The AMT credit can be carried forward for a period of 15 years after which the credit undergoes a lapse. There is no interest paid to the taxpayer during such credit.

Report from Chartered Accountant

All non-corporate taxpayers who abide by the AMT provisions are required to acquire a report from a Chartered Accountant in Form no. 29C. This has to be done before the due date of filing income tax returns.