The Alternative Minimum Tax (AMT) is a unique provision in India’s tax system. It is designed to ensure that certain taxpayers, especially those with significant deductions and exemptions, still contribute a minimum amount of tax. It primarily targets taxpayers who earn substantial income but manage to pay little or no tax due to various exemptions.
What is AMT?
Introduced in the Income Tax Act of 1961, it is aimed at corporations and individuals who benefit from deductions available under the Income Tax laws. It applies primarily to taxpayers who have a gross total income exceeding ₹20 lakh and who claim certain deductions under sections such as 80-IA, 80-IB, and others. This includes companies and firms that enjoy various tax benefits but might otherwise pay little or no tax.
How Does AMT Work?
AMT is calculated at a flat rate of 18.5% on a taxpayer’s adjusted total income, which is computed by adding back certain deductions and exemptions to the taxable income. These might include deductions under sections like 80HH, 80I, 80JJA, and others.
Example:
Ramesh is a businessman with a total income of ₹30,00,000. He has also claimed various deductions amounting to ₹10,00,000 under sections 80C, 80D, and others.
- Total Income: ₹30 lakh
- Deductions added back: ₹10 lakh (for AMT calculation)
- Adjusted Income: ₹30 lakh + ₹10 lakh = ₹40 lakh
Now, let’s calculate the AMT:
- AMT Rate: 18.5%
- AMT Amount: ₹40 lakh * 18.5% = ₹7.4 lakh
In this case, Ramesh must pay ₹7.4 lakh as AMT.
Conclusion:
Thus, Alternative Minimum Tax ensures that all taxpayers contribute a minimum amount to the national exchequer, promoting fairness in the taxation system. Understanding AMT can help taxpayers plan their finances better and also ensure compliance with tax regulations. Always consult a tax professional for personalized advice to navigate this aspect of taxation effectively.
– Ketaki Dandekar (Team Arthology)
Read more about Alternative Minimum Tax here – https://cleartax.in/glossary/amt