Alternate Minimum Tax - Impact of proposals of Finance Bill 2012

Traditionally income-tax levies Minimum Alternate Tax on company who discloses profits but after considering incentives and higher rate of depreciation has no or lower taxable income. Last year for the first time similar provisions were extended to non-corporate tax payer i.e. LLPs. In order to hoard erosion of tax base and widen tax base vis-à-vis profit linked deductions, Finance Bill 2012 proposed to levy AMT on all individual and non-corporate tax assesse, who has claimed deduction under any section from 80H to 80RRB (excluding 80P) and u/s 10AA. Series of amendments are proposed vide various clauses of the Bill.

Clause 48 of the Bill proposed to replace Section 115JC. Brief contents are as under:

·     A.       Sub-section (1) starts with notwithstanding words

o   It intends to compares normal tax on person other company with AMT.

o   If normal tax is lower than AMT, adjusted total income shall be deemed to be total income of person other corporate

o   Adjusted total income would be subject to tax at 18 ½ per cent.

    B. Sub-section (2) lays the method of calculating adjusted total income, which is sum of

o   total income (without considering provision of AMT)

o   income based deductions claimed any section under chapter VI-A Part C ie from section 80H to 80RRB and

o   deduction claimed u/s 10AA ie units established in Special Economic Zones

  C. Sub-section (3) requires such person other corporate to obtain report in prescribed form, from accountant,

o   Accountant is required to certify computation of adjusted total income and AMT is as per the provisions of the Act.

o   Report is required to be obtained on or before due date of filing of return u/s 139(1).

Clause 51 proposes to introduce new section 115JEE, giving exemption from applicability of AMT. It provides that provision of AMT shall not apply to individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if the adjusted total income of such person does not exceed Rs 20 lakh.

Further various other clauses have been introduced for consequential amendment in various other section as under:

     a.       Clauses 47 – proposes to amend chapter XII-BA heading from “Special provisions relating to certain Limited Liability Partnerships” to “Special provisions relating to PERSONS OTHER THAN A COMPANY”

     b.      Clause 49 – proposes to amend S. 115JD to provide tax credit for alternate minimum tax to persons other than a company

     c.       Clause 50 – proposes to amend S. 115JE to provide that all other provisions of the Act shall apply to such person other than a company.

     d.      Clause 57 – proposes to amend various clauses of S. 140A relating to payment of self-assessment tax.

     e.      Clauses 82, 83 & 84 – proposes to amend sections 234A, 234B & 234C. It provides that AMT credit u/s 115JD shall be reduced from tax on total income determined as per the provisions of Act, for the purposes of determining interest u/s 234A – late filing of return of income, u/s 234B interest for default in payment of advance tax & u/s 234C deferment of advance tax.

AMT v/s MAT

AMT differs from MAT on various counts; some of them are as under:

S. No.	Particulars	MAT	AMT
1	Applies to	Companies	Persons other than Companies
2	Trigger point	Having book-profit	Claiming specified deductions
3	Computation mode	Book-profit is adjusted with specified adjustment	Total income is increased by specified deduction
4	Preparation of profit & loss  Accounts	Companies are required to prepare profit & loss account as per the provision of Schedule VI	No such legal requirement
5	Allowance of depreciation	Depreciation is to be calculated at the rate specified under Schedule XIII of Companies Act	Depreciation is to be calculated at the rate specified under rule 5 of Income-tax rules.
6	Treatment of brought forward losses & depreciation	Lower of brought forward losses or depreciation as per books is allowed to be deducted from book-profit	Both brought forward loss and well as brought forward depreciation (determined as per income-tax provisions), to be deducted before carrying specified adjustment to total income
7	Long term capital gains exempt u/s 10(38)	MAT is applicable	AMT is not applicable

Illustration

Provisions of the amended chapter can be better under stood with the help of following example:

X co has entered into Joint venture for carrying certain infrastructure projects eligible for profit based incentive u/s 80IA.

      A)     Computation of Income under normal provision of Act

Particulars	20x3	20x4	20x5
Gross Total income	19	1100	1400
Deduction u/s 80-IA	15	500	400
Total income	4	600	1000
Tax @ 30%	1.2	180	300
E. Cess @ 3%	0.036	5	9
Total Tax	1.236	185	309

      B)      Computation of Adjusted total Income

Particulars	20x3	20x4	20x5
Total Income	4	600	1000
Add: Deduction under Chapter VIA-C (from 80H to 80RRB) &   10AA	15	500	400
Adjusted total Income	19	1100	1400
Alternate Minimum Tax @  18½ %	0*	204	259
Education Cess @ 3%		6	8
Total	0	210	267

      C)      Computation of tax

Particulars	20x3	20x4	20x5
Normal Tax (a)	1.236	180	300
Alternate Minimum Tax (b)	NA	204	259
Taxed at Normal Rate (NR) or AMT	NR*	AMT	NR
Higher of (a) or (b)	1.236	204	300
Tax Due (including Education Cess)	1.236	210	309
Less Tax credit utilised	NIL	NIL	24
Tax Payable	1.236	210	284

* Since adjusted total income is less than Rs 20 lakh AMT is not applicable

      D)     Computation of tax credit

Particulars	20x3	20x4	20x5
Tax credit brought forward & available for utilisation	NIL	NIL	24
Maximum amount upto which AMT credit can be availed Normal tax (–) AMT excluding Education Cess			41
			(300-259)
Tax Credit can be availed limited to actual credit	NIL	NIL	24
Tax credit allowed to be carried forward	NIL	24	NIL
		(204-180)	(24-24)

Proposed introduction of AMT will fasten higher rate of tax on any assesee who earns income which is subject to special lower rate of tax ie less than 18½ %, even though such income is not entitled for specified deduction.  Further individual, HUF, and at times AOP & BOI are charged to slab rate of tax. AMT would take away benefit of slab rates. To illustrate,

Particulars	Scenario 1	Scenario 2
Gross Total Income	19,99,900	20,00,100
Deduction u/s 80IA	15,00,000	15,00,000
Total Income	04,99,900	05,00,100
Adjusted Total Income	19,99,900	20,00,100
Tax on Normal Rate	29,990	30,030
AMT	NIL	3,70,119
Tax liability without considering deduction u/s 80IA		4,30,030

In the above example it may be observed that under scenario 2 increase of income by Rs 200, assesse is subject to increase tax by Rs 3,40,089 and benefit of slab rate is lost. In such scenario it is suggested to introduce marginal relief and income subject to special lower rate of tax eg short term capital gains on listed securities etc., should also be excluded while computing Adjusted Total Income.  

Initially Government has provided various tax breaks to encourage certain industries in specified areas or certain type of industries, which is to be availed in specified number of years. Hence, questions may arise whether specified industries have been matured well before expected time or where India has achieved target industrialisation? Further is it fair to provide exemption on one hand and withdraw it on other hand? 

(Extracts from the article published in Income Tax Review April 2012 Issue)