Table of Contents
Essential of Alternate Minimum Tax(AMT) & Difference with MAT
Alternative Minimum Tax – Essential
The aim of the Finance Act 2011 is to tax such LLP differently. A new Chapter XII-BA titled "Special Provisions relating to certain LLP" was adopted on 01 April 2012. Under this chapter, LLPs are now subject to AMT of @18.5 percent, in line with the MAT for Companies. However, the applicability of AMT to LLPs is very limited compared to MAT in the case of companies. This is because, in the case of LLPs, the tax base will be the Adjusted Net Profits measured under Section 115JC(2) and not the Book Profit as in the case of Companies.
As can be seen from the term, AMT is a minimum tax that can be imposed as an alternative to normal tax. The rate of AMT is 185% (plus applicable surcharge and cess). AMT is the tax levied on 'adjusted gross income' in the fiscal year in which the regular income tax is lower than the AMT on Adjusted total income. Therefore, irrespective of the normal tax, AMT must be paid by the taxpayer to whom the terms of the AMT refer.
Exemption from the threshold under Alternate Minimum Tax
Section 115JEE of the Income Tax Act provides that the AMT applies to the individual, the Hindu Undivided Family, the Association of People, the Body of Individuals, and the artificial legal person only if the 'adjusted total income' exceeds INR 20 Lakh.
It is necessary to note here that the value of the threshold exemption is applicable only to the groups of individuals referred to above. The advantage of the threshold exemption is not applicable to the partnership company, LLP, and another non-corporate assessee.
Limited Liability Partnerships Income Tax Rate as applicable for the Assessment year 2020-2021
The Limited Liability Partnerships is liable to pay income tax of up to 30% of its income. In the event that the overall income exceeds INR 1 Crore, Limited Liability Partnerships is also liable to pay a surcharge of up to 12 percent of the income tax.
In addition, a 4 percent reduction in health and education is payable on income tax plus a surcharge.
Adjusted Net revenue is the total revenue increased by-
• Following Deductions can be claimed under this Chapter VI-A (C), that is, income-based deductions claimed under Sections 80IA, 80IAB, 80IB, 80IC, 80ID, 80IE and 80JJA, and
• Following Deductions claimed U/s 10AA, i.e. deductions available to SEZ Units;
Adjusted Total Income Calculation
Adjusted total income and Alternate Minimum Tax has arrived in the following manner:
|
Particulars |
Amount (in Rs) |
|
Taxable income (A) |
ZZZZ |
|
Add: Deduction claimed if any under Chapter VI-A from 80H to 80RRB except 80P (B) |
ZZZZ |
|
Deduction claimed if any under Section 10AA (C) |
ZZZZ |
|
Deduction claimed if any under Section 35AD reduced by regular depreciation allowed (D) |
ZZZZ |
|
Adjusted total income (E) = (A)+(B)+(C)+(D) |
ZZZZ |
|
AMT – 18.5% of (E) |
ZZZZ |
Therefore, unlike the company, Limited Liability Partnerships would not be liable to pay Alternate Minimum Tax on exempt incomes like Long term capital gain under section 10(38), Dividend income under section 10(34), etc
Computation of tax liability
If Alternate Minimum Tax provisions apply to the Limited Liability Partnerships, in that case, the Limited Liability Partnerships tax liability would be calculated as –
|
Particulars |
Amount |
|
Tax liability computed as per the normal provisions of the Income Tax Act (A) |
XXX |
|
Tax liability computed as per Alternate Minimum Tax provisions (B) |
XXX |
|
Tax payable by the Limited Liability Partnerships would be higher of (A) or (B) |
XXX |
It is important to note here that Limited Liability Partnerships are expected to pay tax as per Alternate Minimum Tax only in the financial year where the tax on regular income is lower than the AMT on Adjusted Total Income.
Exemption from the application of Alternate Minimum Tax
The provisions of the Alternative Minimum Tax shall not apply to any individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI) or artificial legal person whose adjusted total income does not increase INR 20 lakhs.
Thus this exception on the basis of the monetary threshold of the adjusted gross income does not extend to LLPs, partnership companies and other non-corporate assessees.
What is Alternate Minimum Tax Credit?
If in any year, the LLP pays tax liability as per Alternate Minimum Tax, it is allowed to claim Alternate Minimum Tax credit. The amount of AMT credit will be in excess of the tax paid as per Alternate Minimum Tax over the tax payable as per the usual requirements, i.e. Alternate Minimum Tax Credit = tax paid as per the AMT provisions – tax calculated as per the regular regulations.
Alternate Minimum Tax credit can be used in successive periods. The AMT credit can be adjusted in the year in which the tax payable under the usual provisions is higher than the tax payable under the AMT. The use of AMT is permitted as follows –
Sum of use of Alternate Minimum Tax credit = tax payable under the usual rules (-) tax as per Alternate Minimum Tax.
AMT credit may be carried forward for a period of fifteen years immediately following the assessment year in which such credit is generated. If the AMT credit remains unused after fifteen years, the unpaid AMT credit will expire.
Reporting provisions
Both taxpayers to whom the provisions of the AMT are applicable are required to obtain a report from the Chartered Accountant certifying that the adjusted net income and the AMT have been calculated in accordance with the provisions of the Income Tax Act, in Form No. 29C, and to file a report on or before the due date for the return of income. Reporting must be filed electronically along with a return of profits.
DIFFERENCE IN THE PROVISION BETWEEN ALTERNATIVE MINIMUM TAX (AMT) AND MINIMUM ALTERNATE TAX(MAT)
|
Particular |
Alternative Minimum Tax (AMT) |
Minimum Alternate Tax(MAT) |
|
Applicability of AMT and MAT |
Alternate Minimum Tax is applicable to Limited Liability Partnerships, Taxable Person, other than the company, claiming deduction under section 80H to 80RRB (except section 80P), or section 10AA or section 35AD |
Minimum Alternate Tax is applicable to companies, |
|
Chapter and Section of Taxability |
Chapter XII-BA, Section 115JC |
Chapter XII-B, Section 115JB |
|
What is Tax Base |
Taxable on Adjusted Total Income |
Taxable on Book Profits |
|
Applicable Rate of Tax |
Alternate Minimum tax rate - 18.5% + Education Cess @3% Effective rate - 19.05% (Surcharge is not applicable to Limited Liability Partnerships ) |
Minimum Alternate Tax rate - 18% + surcharge @ 5% if book profit exceeds Rs. 1 crore + Education Cess @ 3% Effective Rate (including surcharge) - 19.5%, |
|
What is Trigger Point |
Where the regular income tax payable for a previous year by an LLP is less than Alternate Minimum tax payable for such previous year, Adjusted Total Income shall be deemed to be the total income of the LLP for such previous year and LLP will be liable to pay income-tax on such adjusted total income |
Companies are required to pay Minimum Alternate Tax on book profits if the income tax payable on the total income, computed under the Income Tax Act, is less than Minimum Alternate Tax |
|
Incomes exempt from tax |
Limited Liability Partnerships are not liable to pay Alternate Minimum tax on incomes exempt from tax |
Companies are liable to pay Minimum Alternate Tax on income exempt under Section 10 (38) and 10 (34) |
|
What’s is Meaning of Tax Base |
Adjusted Total income means the total income computed under normal provisions of the Income Tax Act as increased by the deductions claimed, if any, under Chapter VI-A (C) or Section 10AA |
Book Profit means the Net Profit as shown in the P&L Account as increased/decreased by certain items specified under Explanation to Section 115JB |
|
Position of Tax Credit |
Alternate Minimum tax-paying Limited Liability Partnerships can claim credit for Ten AY starting from the year in which the credit becomes allowable |
Minimum Alternate Tax paying companies can claim the credit for Ten AY starting from the year in which the credit becomes allowable |
|
Reporting requirement |
Form 29C |
Form 29B |
Concluding
In an attempt to save income on behalf of companies converting to Limited Liability Partnerships in order to benefit from tax exemptions and to rationalize the taxation of LLPs with companies, the Union Budget introduced the implementation of a new chapter XII-BA under the Income Tax Act 1961, which provides for an Alternate Minimum tax levy of 18.5 percent + 3 percent on the adjusted total income of the Limited Liability Partnerships.
