Section 115JC of the Income Tax Act was introduced in the Finance Act, 2016. This section deals with the levy of additional income tax, also known as Alternate Minimum Tax (AMT), on certain entities. In this blog, we will discuss the applicability of section 115JC of the Income Tax Act with proper headings.
Who is liable to pay AMT?
As per section 115JC, the following entities are liable to pay AMT:
- Companies other than companies engaged in infrastructure development or power sector
Limited Liability Partnerships (LLPs) - Any other person who has claimed a deduction under section 10AA (exemption in respect of profits and gains from exports) or section 35AD (deduction in respect of certain capital expenditure)
How is AMT calculated?
The AMT is calculated as the higher of the following:
- 18.5% of the adjusted total income of the entity, or
- The amount by which the regular income tax payable by the entity exceeds the AMT.
- Adjusted total income is calculated by adding certain items such as deductions claimed under sections 80HHC, 80HHE, 10AA, and 35AD, depreciation, and loss brought forward.
When is AMT applicable?
AMT is applicable if the regular income tax payable by the entity is less than the AMT calculated as per section 115JC. However, the following entities are exempt from AMT:
- Companies engaged in infrastructure development or power sector
- Any entity whose adjusted total income does not exceed Rs. 20 crores
What is the impact of AMT on the entity?
If an entity is liable to pay AMT, it needs to pay the higher of the AMT or the regular income tax payable. This may lead to a higher tax liability for the entity. However, if the entity has paid AMT in any financial year, it can carry forward the excess AMT paid and set it off against the regular income tax payable in the subsequent financial years.
Purpose of AMT
The purpose of AMT is to ensure that entities claiming deductions and exemptions under various sections of the Income Tax Act do not escape tax liability completely. These deductions and exemptions often reduce the regular income tax liability to zero or a negligible amount. However, the AMT ensures that these entities pay a minimum amount of tax, which is calculated based on their adjusted total income.
Calculation of Adjusted Total Income
The adjusted total income of the entity is calculated by adding back certain deductions and exemptions that were claimed while computing the regular income tax liability. The following deductions are added back while calculating the adjusted total income:
- Deductions claimed under sections 80HHC (deduction in respect of profits from export of goods or merchandise), 80HHE (deduction in respect of profits from export of computer software), 10AA (exemption in respect of profits and gains from exports), and 35AD (deduction in respect of certain capital expenditure)
- Depreciation claimed under section 32 of the Income Tax Act
- Losses brought forward from earlier years
Once these deductions are added back, the AMT is calculated based on the adjusted total income.
Computation of AMT
The AMT is calculated as the higher of 18.5% of the adjusted total income or the amount by which the regular income tax payable exceeds the AMT. For example, if the regular income tax payable is Rs. 10 lakhs and the AMT calculated as per section 115JC is Rs. 12 lakhs, the entity will have to pay Rs. 12 lakhs as AMT.
Exemption from AMT
As mentioned earlier, companies engaged in infrastructure development or power sector are exempt from AMT. Additionally, entities whose adjusted total income does not exceed Rs. 20 crores are also exempt from AMT.
Impact of AMT on Tax Liability
If an entity is liable to pay AMT, it will have to pay the higher of the AMT or the regular income tax payable. This may lead to a higher tax liability for the entity. However, if the entity has paid AMT in any financial year, it can carry forward the excess AMT paid and set it off against the regular income tax payable in the subsequent financial years. This ensures that the entity does not pay more tax than what is required by law.
Impact on Companies and LLPs
Companies and LLPs that are liable to pay AMT will have to pay the higher of the AMT or the regular income tax payable. This may lead to a higher tax liability for these entities. However, the AMT paid can be carried forward and set off against the regular income tax payable in subsequent years. Additionally, companies engaged in infrastructure development or power sector are exempt from AMT.
Impact on Entities Claiming Deductions under Section 10AA and 35AD
Entities claiming deductions under section 10AA (exemption in respect of profits and gains from exports) and section 35AD (deduction in respect of certain capital expenditure) are also liable to pay AMT. This may lead to a higher tax liability for these entities. However, the AMT paid can be carried forward and set off against the regular income tax payable in subsequent years.
Impact on Loss-Making Entities
Entities that are incurring losses may not be liable to pay regular income tax. However, if such entities have claimed certain deductions and exemptions, they may be liable to pay AMT. This may lead to a higher tax liability for these entities. However, the excess AMT paid can be carried forward and set off against the regular income tax payable in subsequent years.
Conclusion
Section 115JC of the Income Tax Act is applicable to certain entities such as companies, LLPs, and entities claiming deduction under section 10AA or 35AD. The AMT is calculated as the higher of 18.5% of the adjusted total income or the amount by which the regular income tax payable exceeds the AMT. The impact of AMT on the entity may lead to a higher tax liability, but excess AMT paid can be carried forward and set off against the regular income tax payable in subsequent years.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
What is the full form of AMT?
AMT stands for Alternate Minimum Tax.
Who is liable to pay AMT?
Entities that have claimed certain deductions and exemptions while computing their regular income tax liability are liable to pay AMT.
What is the purpose of AMT?
The purpose of AMT is to ensure that entities claiming deductions and exemptions under various sections of the Income Tax Act do not escape tax liability completely.
How is the adjusted total income of an entity calculated?
The adjusted total income of an entity is calculated by adding back certain deductions and exemptions that were claimed while computing the regular income tax liability. These deductions include deductions claimed under sections 80HHC, 80HHE, 10AA, and 35AD, depreciation claimed under section 32, and losses brought forward from earlier years.
What is the rate of AMT?
The rate of AMT is 18.5% of the adjusted total income.
What is the exemption limit for AMT?
Entities whose adjusted total income does not exceed Rs. 20 crores are exempt from AMT.
Are companies engaged in infrastructure development or power sector exempt from AMT?
Yes, companies engaged in infrastructure development or power sector are exempt from AMT.
Can excess AMT paid be carried forward?
Yes, excess AMT paid can be carried forward and set off against the regular income tax payable in subsequent years.
How does AMT impact tax planning strategies of entities?
Entities may need to consider the impact of the AMT while claiming deductions and exemptions under various sections of the Income Tax Act and maintain proper records of their income and deductions.
Is it mandatory to pay AMT?
If an entity is liable to pay AMT, it is mandatory to pay the AMT or the regular income tax payable, whichever is higher.
