MAT Vs AMT: Minimum Alternate Tax And Alternative Minimum Tax

Last Updated : March 13, 2023, 6:05 p.m.

The 1961 Income Tax Act imposes a tax on earned income and provides multiple subtractions and exceptions from the income earned prior to imposing a tax. A few firms began taking advantage of the subtraction and exceptions that resulted in decreased tax liability or no tax liability. This led to an increase in Nil tax paying firms. This resulted in the introduction of the minimum alternate tax, which intended to bring the NIL tax-paying firms into the tax net, which have significant profits, pay good dividends, and no tax. AMT was introduced later.

What is Minimum Alternate Tax?

Minimum Alternate Tax is a measure to incorporate every firm in the income tax bracket. It assures that no firm with proper finances and substantial income can dodge paying income tax, even after claiming exemptions. It is a provision in direct tax to limit tax exceptions that many firms avail to pay a minimum amount of corporate tax to the Government. Under the book profit  Companies Act 2013, a minimum alternate tax is applicable when your taxed income is found to be below 15.5%(including surcharge and cess as applied) under Income Tax Act.

What is Alternative Minimum Tax?

The AMT, or the alternative minimum tax, was introduced in 1969 so that wealthy taxpayers could not deduct their way to zero tax liability. It puts a halt on the taxes a few individuals should pay. It is mainly intended for wealthy taxpayers who may have many tax subtractions and pay a minimal amount of their income as tax. The alternative minimum tax limits specific tax breaks for impacted taxpayers. It needs taxpayers above a particular income threshold to calculate their income tax and pay the due tax. The calculation of alternative minimum tax involves removing specific tax deductions and breaks.

Difference Between Minimum Alternate Tax and Alternative Minimum Tax

• Minimum Alternate Tax is imposed on firms. On the other hand,  an alternative minimum tax is imposed on entities and individuals except for companies.
• The AMT is calculated as adjusted overall income. On the other hand, a minimum alternate tax on book profits. Adjusted overall income means the overall income arising from claimed deductions if there are any such deductions according to Chapter VI-A(C), Section 80IA-80RRB other than 80P or Section 10AA. Book Profits mean the profit and loss statement of the assessee made according to Schedule VI of the Companies Act of 1956.
• The AMT rate is 18.5%, including the applied surcharge and cess on adjusted overall income, which is nine percent, and includes the applied surcharge and cess if the non-corporate taxpayer is a unit in International Finance Services Centre and earning income only in the convertible foreign exchange. On the other hand, the minimum alternate tax rate is fifteen percent which includes the applied surcharge and cess on book profits, which is nine percent which includes the applied surcharge and cess, if the firm is in an International Finance Service Centre and earns income only in convertible foreign exchange.
• The alternative minimum tax is not imposed on Capital Gain Exempt. On the other hand, the minimum alternate tax is imposed on Capital Gain Exempt.
• The minimum alternate tax is imposed when the income tax, including the surcharge and the cess, calculated on the overall income, according to the provisions mentioned in the Income Tax Act, is below fifteen percent of book profit, surcharge, and cess. On the other hand, the alternative minimum tax is imposed when the income tax, including surcharge and cess, calculated on the overall income according to the provisions mentioned in the Income Tax Act is below 18.5% of the adjusted overall income, surcharge, and cess.
• An organisation under minimum alternate tax has to get a report from the CA, according to form 29B, where it is mentioned that the book profit determined for minimum alternate tax is according to Section 115JB of the 1961 Income Tax Act. On the other hand, an individual under the alternative minimum tax has to get a report from a CA, according to Form 29C, where it is certified that the adjusted overall income determined for alternate minimum tax and liability is according to Section 115JC of the 1961 Income Tax Act.

Similarity Between Minimum Alternate Tax and Alternative Minimum Tax

Both minimum alternate tax and alternative minimum tax can be extended up to fifteen years. Both will lapse after the fifteen-year tenure ends.

Provisions of Minimum Alternate Tax

The provisions of the minimum alternate tax need that a company’s base tax constraint is above the following:

• The symbolic tax liability of a company, according to the provisions mentioned in the Income Tax laws, by which the analysed amount will be the tax rate applicable to the company
• Tax estimated at fifteen percent on book profit, including extra charge and cess

Provisions of Alternative Minimum Tax

Non-corporate citizens are entitled to the provisions of the alternative minimum tax in a custom-built model. The minimum alternate tax is appropriate for companies; on the other hand, the alternative minimum tax is fit for people. The arrangements of the alternative minimum tax are mentioned in sections 115JC to 115JF.

Minimum Alternate Tax Credit

Section 115JAA mentions the provisions to extend and make changes in the minimum alternate tax credit. If a company pays tax under the minimum alternate tax credit, the company is favoured to assure the minimum alternate tax credit in the later years. At the time of the Foreign Tax Credit count, if the minimum alternate tax amount exceeds the Foreign Tax Credit count, the surpassed tax amount is not considered.

Alternative Minimum Tax Credit

As per the provisions mentioned in the alternative tax credit, non-corporate citizens coming under the alternative minimum tax must comply with a high standard of lawful tax responsibility. Suppose a citizen makes a liability payment according to the guidelines mentioned in the alternative minimum tax. In that case, the citizen can claim credit for the next few years because the alternative minimum tax paid exceeds the ordinary tax liability.

Conclusion

If you want to take advantage of AMT and minimum alternate tax provisions under the Income Tax Act, you can take financial assistance. You can ensure not to miss an income tax return and pay more than your minimum tax liability under the assistance of tax experts. Minimum Alternate Tax and Alternate Minimum Tax are taxation concepts that are good for organisations and people paying taxes. The minimum alternate tax standards are relevant for organisations, and the AMT standards are appropriate for people.