MAT AND AMT

MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax. Initially
the concept of MAT was introduced for companies and progressively it has been made
applicable to all other taxpayers in the form of AMT. In this part you can gain knowledge about
various provisions relating to MAT and AMT. First of all we will understand the provisions of
MAT and thereafter the provisions of AMT.
Objective of levying MAT
At times it may happen that a taxpayer, being a company, may have generated income during the
year, but by taking the advantage of various provisions of Income-tax Law (like exemptions,
deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax
at all. Due to increase in the number of zero tax paying companies, MAT was introduced by the
Finance Act, 1987 with effect from assessment year 1988-89. Later on, it was withdrawn by the
Finance Act, 1990 and then reintroduced by Finance (No. 2) Act, 1996, wef1-4-1997.
The objective of introduction of MAT is to bring into the tax net "zero tax companies" which in
spite of having earned substantial book profits and having paid handsome dividends, do not pay
any tax due to various tax concessions and incentives provided under the Income-tax Law.
Since the introduction of MAT, several changes have been introduced in the provisions of MAT
and today it is levied on companies as per the provisions of section 115JB.
Basic provisions of MAT
As per the concept of MAT, the tax liability of a company will be higher of the following:
 Tax liability of the company computed as per the normal provisions of the Income-tax
Law, i.e., tax computed on the taxable income of the company by applying the tax rate
applicable to the company. Tax computed in above manner can be termed as normal tax
liability.
 Tax computed @ 18.5% (plus surcharge and cess as applicable) on book profit (manner
of computation of book profit is discussed in later part). The tax computed by applying
18.5% (plus surcharge and cess as applicable) on book profit is called MAT.
Note:
MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company,
being a unit of an International Financial Services Centre and deriving its income solely in
convertible foreign exchange.
Illustration
The taxable income of Essem Minerals Pvt. Ltd. computed as per the provisions of Income-tax
Act is Rs. 8,40,000. Book profit of the company computed as per the provisions of section 115JB
is Rs. 18,40,000. What will be the tax liability of Essem Minerals Pvt. Ltd. (ignore cess and
surcharge)?
**

[As amended by Finance Act, 2018]

The tax liability of a company will be higher of: (i) Normal tax liability, or (ii) MAT. Normal tax
rate applicable to an Indian company is 30%* (plus cess and surcharge as applicable). Tax @
30% on Rs. 8,40,000 will amount to Rs. 2,52,000 (plus cess). Book profit of the company is Rs.
18,40,000. MAT liability (excluding cess and surcharge) @ 18.50% on Rs.18,40,000 will come
to Rs. 3,40,400.
Thus, the tax liability of Essem Minerals Pvt. Ltd. will be Rs. 3,40,400 (plus cess as applicable)
being higher than the normal tax liability.
Note : * A domestic Company is taxable at the rate of 25% if, its turnover or gross receipt does
not exceed Rs. 250 crores in the previous year 2016-17. In this case, it has been assumed that the
turnover of Company exceeds Rs. 250 in previous year 2016-17.
Illustration
The taxable income of SM Energy Pvt. Ltd. computed as per the provisions of Income-tax Act is
Rs. 28,40,000. Book profit of the company computed as per the provisions of section 115JB is
Rs. 18,40,000. What will be the tax liability of SM Energy Pvt. Ltd. (ignore cess and surcharge)?
**
The tax liability of a company will be higher of: (i) Normal tax liability, or (ii) MAT. Normal tax
rate applicable to an Indian company is 30%* (plus cess and surcharge as applicable). Tax @
30% on Rs. 28,40,000 will amount to Rs. 8,52,000 (plus cess). Book profit of the company is Rs.
18,40,000. MAT liability (excluding cess and surcharge) @ 18.50% on Rs.18,40,000 will come
to Rs. 3,40,400.
Thus, the tax liability of SM Energy Pvt. Ltd. will be Rs. 8,52,000 (plus cess as applicable),
being higher than the MAT liability.
Note : * A domestic Company is taxable at the rate of 25% if, its turnover or gross receipt does
not exceed Rs. 250 crores in the previous year 2016-17. In this case, it has been assumed that the
turnover of Company exceeds Rs. 250 in previous year 2016-17.
Applicability and non-applicability of MAT
As per section 115JB, every taxpayer being a company is liable to pay MAT, if the Income-
tax(including surcharge and cess) payable on the total income, computed as per the provisions of
the Income-tax Act in respect of any year is less than 18.50% of its book-profit + surcharge (SC)
+ health & education cess.
From the above it can be observed that the provisions of MAT are applicable to every company
whether public or private and whether Indian or foreign. However, as per section 115JB(5A)
MAT shall not apply to any income accruing or arising to a company from life insurance
business referred to in section 115B. Further, as per provisions of Section 115V-O the provisions
of MAT will not apply to a shipping income liable to tonnage taxation, i.e., tonnage taxation
scheme as provided in section 115V to 115VZC.
As per Explanation 4 to section 115JB as amended by Finance Act, 2016 with retrospective
effect from 1/4/2001, it is clarified that the MAT provisions shall not be applicable and shall be
deemed never to have been applicable to an assessee, being a foreign company, if—

[As amended by Finance Act, 2018]

(i) the assessee is a resident of a country or a specified territory with which India has an
agreement referred to in sub-section (1) of section 90 or the Central Government has adopted
any agreement under sub-section (1) of section 90A and the assessee does not have a
permanent establishment in India in accordance with the provisions of such agreement; or
(ii) the assessee is a resident of a country with which India does not have an agreement of the
nature referred to in clause (i) and the assessee is not required to seek registration under any
law for the time being in force relating to companies.
Further, as per Explanation 4A to section 115JB as inserted by Finance Act, 2018, MAT
provisions shall not be applicable to a foreign company, whose total income comprises of profits
and gains arising from business referred to in section 44AB, 44BB, 44BBA, or 44BBB and such
income has been offered to tax at the rates specified in those sections.
Meaning of book profit*
As per Explanation 1 to section 115JB(2) "book profit" for the purposes of section 115JB means
net profit as shown in the statement of profit and loss prepared in accordance with Schedule III
to the Companies Act, 2013 as increased and decreased by certain items prescribed in this
regard. The items to be increased and decreased are as follows :
Computation of book profit (Table A)
Particulars Amount
Net profit as per statement of profit and loss prepared in accordance with
XXXXX
Schedule III to the Companies Act, 2013
Add : Following items (if they are debited to the statement of profit and
loss)
Income-tax paid/payable and the provision thereof (*) XXXXX
Amounts carried to any reserves by whatever name called (Other than
XXXXX
reserve specified under Section 33AC)
Provisions for unascertained liabilities XXXXX
Provisions for losses of subsidiary companies XXXXX
Dividends paid/proposed XXXXX
Expenditure related to incomes which are exempt under section 10 [other
XXXXX
than section 10(38)] section 11 and section 12
The amount or amounts of expenditure relatable to, income, being share
of the taxpayer in the income of an association of persons or body of
XXXXX
individuals, on which no income-tax is payable in accordance with the
provisions of section 86.

[As amended by Finance Act, 2018]

The amount or amounts of expenditure relatable to income accruing or
arising to a taxpayer being a foreign company, from :

(a) the capital gains arising on transactions in securities; or

XXXXX
(b) the interest, royalty or fees for technical services chargeable to tax at
the rate or rates specified in Chapter XII

if the income-tax payable on above income is less than the rate of MAT
The amount representing notional loss on transfer of a capital asset, being
share or a special purpose vehicle to a business trust in exchange of units
allotted by that trust referred to in clause (xvii) of section 47 or the
amount representing notional loss resulting from any change in carrying XXXXX
amount of said units or the amount of loss on transfer of units referred to
in clause (xvii) of section 47

Expenditure relatable to income by way of royalty in respect of patent

chargeable to tax under section 115BBF XXXXX

Amount of depreciation debited to P & L A/c XXXXX

Deferred tax and the provision thereof XXXXX
Provision for diminution in the value of any asset XXXXX
The amount standing in revaluation reserve relating to revalued asset on
the retirement or disposal of such an asset if not credited to statement of XXXXX
profit and loss
The amount of gain on transfer of units referred to in
clause (xvii) of section 47 computed by taking into account the cost of the
shares exchanged with units referred to in the said clause or the carrying
XXXXX
amount of the shares at the time of exchange where such shares are
carried at a value other than the cost through statement of profit and loss
as the case may be;
Less : Following items (if they are credited to the statement of profit
and loss)
Amount withdrawn from any reserve or provision if credited to P&L
(XXXXX)
account (**)
Incomes which are exempt under section 10 [other than section 10(38)]
(XXXXX)
section 11 and section 12

[As amended by Finance Act, 2018]

Amount of depreciation debited to statement of profit and loss (excluding
(XXXXX)
the depreciation on revaluation of assets)
Amount withdrawn from revaluation reserve and credited to statement of
profit and loss to the extent it does not exceed the amount of depreciation (XXXXX)
on revaluation of assets
The amount of income, being the share of the taxpayer in the income of
an association of persons or body of individuals, on which no income-tax
XXXXX
is payable in accordance with the provisions of section 86, if any such
amount is credited to the statement of profit and loss
The amount of income accruing or arising to a taxpayer being a foreign
company, from :

(a) the capital gains arising on transactions in securities; or

(b) the interest, royalty or fees for technical services chargeable to tax at XXXXX
the rate or rates specified in Chapter XII

if such income is credited to the statement of profit and loss and the
income-tax payable on above income is less than the rate of MAT.
The amount (if any, credited to the statement of profit and loss)
representing

(a) notional gain on transfer of a capital asset, being share of a special

purpose vehicle to a business trust in exchange of units allotted by that
trust referred to in clause (xvii) of section 47; or

(b) notional gain resulting from any change in carrying amount of said
units; or
XXXXX
(c) gain on transfer of units referred to in clause (xvii) of section 47,

The amount representing notional gain on transfer of units referred to in

clause (xvii) of section 47 computed by taking into account the cost of the
shares exchanged with units referred to in the said clause or the carrying
amount of the shares at the time of exchange where such shares are
carried at a value other than the cost through statement of profit and loss,
as the case may be;

Income by way of royalty in respect of patent chargeable to tax under

XXXXX
section 115BBF

[As amended by Finance Act, 2018]

Amount of unabsorbed depreciation and loss brought forward in case of
company against whom an application for corporate insolvency resolution
process has been admitted.
Amount of brought forward loss or unabsorbed depreciation, whichever is
less as per books of account (in case of a company other than the (XXXXX)
company undergoing insolvency proceedings)
Profits of a sick industrial company till its net worth becomes
(XXXXX)
zero/positive
Deferred tax, if credited to statement of profit and loss (XXXXX)
Book profit to be used to compute MAT XXXXX

(*) The amount of Income-tax shall include:

i. Any tax on distributed profits under section 115-O (dividend distribution tax - i.e., DDT)
or tax on distributed income under section 115R;
ii. Any interest charged under this Act;
iii. Surcharge, if any, as levied by the Central Acts from time-to-time;
iv. Education Cess on Income-tax, if any, as levied by the Central Acts from time-to-time;
and
v. Secondary and Higher Education Cess on Income-tax, if any, as levied by the Central
Acts from time-to-time.
(**) Withdrawals made from reserves created or provisions made on or after the 1-4-1997, shall
be deducted only if the book profit of the year of creation of such reserve has been increased by
the amount transferred to such reserve or provisions (out of which the said amount was
withdrawn).
For example, Governmental grants relating to depreciable assets are credited to special reserve
(i.e., not to statement of profit and loss) in the year of receipt and a portion of such grant is
transferred from that reserve to statement of profit and loss over the life of the asset in proportion
to depreciation charged. In the year in which these grants were credited to special reserve, they
had not been added to net profit for calculation of book profit subjected to MAT. Therefore, in
the year of transfer to P&L the amounts so transferred shall not be reduced from net profit while
calculating book profit for the purpose of MAT.
Meaning of book profit for Indian Accounting Standards (Ind AS) compliant companies
1. As per newly inserted section 115JB(2A) by the Finance Act, 2017, “book profit” for Ind AS
compliant company for the purpose of section 115JB means the book profit as computed in
accordance with Explanation 1 to section 115JB(2) as:-
(a) increased by all amounts credited to other comprehensive income (OCI) in the statement
of profit and loss that will not be re-classified to profit or loss;

[As amended by Finance Act, 2018]

 (b) decreased by all amounts debited to other comprehensive income (OCI) in the statement
of profit and loss that will not be re-classified to profit or loss;
(c) increased by all amounts or aggregate of amounts debited to the statement of profit and
loss on distribution of non-cash assets to shareholders in a demerger of companies in
accordance with Appendix A of Ind AS 10; and
(d) decreased by all amounts or aggregate of amounts credited to the statement of profit and
loss on distribution of non-cash assets to shareholders in a demerger of companies in
accordance with Appendix A of Ind AS 10.
2. Any item credited/debited to OCI that will not re-classified to profit or loss should be ignored
for the purpose of computing book profit if that item is:
(i) Revaluation surplus for fixed assets and intangible assets under Ind AS 16 and Ind AS
38; or
(ii) Gains or losses from investments in equity instruments measured at fair value through
other comprehensive income (FVTOCI) as per Ind AS 109.
But, the book profit of the previous year in which the asset or investment as referred to in above
points (i) and (ii) is retired, disposed, realised or otherwise transferred shall be increased or
decreased by the amounts of above points (i) and (ii) to the extent relatable to the disposed asset
or investment.
3. In the case of a resulting company, where the assets and liabilities of the undertaking or
undertakings being received by it are recorded at values different from values appearing in the
books of account of the demerged company immediately before demerger, any change in such
value shall be ignored for the purpose of computation of book profit of the resulting company.
4. So, for the computation of book profit of an Ind AS compliant company, you may proceed as
follows:
Particulars Amount
Book profit as computed in Table A XXXXX
Adjustments as mentioned in point (3) above XXXXX
Adjustments for revaluation gain/loss for fixed assets & intangible assets in XXXXX
the year of their disposal or transfer
Adjustments for gains or losses from investments in equity instruments XXXXX
measured at FVTOCI in the year if their disposal or transfer
Adjustments for any other OCI items that will not be re-classified to profit or XXXXX
loss
Book profit to be used to compute MAT XXXXX

5. The adjustments arising on account of transition to Ind AS from existing Indian GAAP are
required to be recorded under Other Equity in the balance sheet. The amount of these
adjustments are defined as transition amount. The amount of such adjustments that will not be re-

[As amended by Finance Act, 2018]

classified should be included in computation of book profit equally over a period of 5 years
starting from the year of first-time adoption of Ind AS, subject to certain exclusions.
MAT credit
As discussed in earlier part, a company has to pay higher of normal tax liability or liability as per
MAT provisions. If in any year the company pays liability as per MAT, then it is entitled to
claim credit of MAT paid over and above the normal tax liability in the subsequent year(s).The
provisions relating to carry forward and adjustment of MAT credit are given in section 115JAA.
Provided that where the amount of Foreign Tax Credit (‘FTC’) allowed against the MAT
exceeds the amount of such FTC admissible against the tax payable by the assessee under normal
provisions of the Income-Tax Act, then, while computing the amount of FTC under this sub-
section, such excess amount shall be ignored.
Illustration
The tax liability of Essem Minerals Ltd. for the financial year 2018-19 under the normal
provisions of the Income-tax Act is Rs. 8,40,000 and the liability as per the provisions of MAT is
Rs. 10,00,000. Will the company be entitled to claim any MAT credit in the subsequent year(s)
as per the provisions of section 115JAA?
**
A company paying MAT is entitled to claim the credit of MAT paid in excess of normal tax
liability. In this case the liability of Essem Minerals Ltd. for the year 2018-19 under the normal
provisions is Rs. 8,40,000 and as per the provisions of section 115JB it is Rs. 10,00,000 (which
is higher than normal tax liability) and, hence, the company has to pay Rs. 10,00,000, i.e.,
liability as per MAT provisions.
As per section 115JAA, if in any year a company pays its tax liability as per MAT, then it can
claim MAT credit being the excess MAT paid over the normal tax liability. In this case, as the
liability of MAT is higher, and, hence, the company will be entitled to claim MAT credit of Rs.
1,60,000 (being excess of MAT over normal tax liability of Rs. 8,40,000).
Adjustment of carried forward MAT credit
As discussed earlier, a company is entitled to claim MAT credit i.e. excess of MAT paid over the
normal tax liability. The credit of MAT can be utilised by the company in the subsequent year(s).
The credit can be adjusted in the year in which the liability of the company as per the normal
provisions is more than the MAT liability. The set off in respect of brought forward MAT credit
shall be allowed in the subsequent year(s) to the extent of the difference between the tax on its
total income as per the normal provisions and as per the MAT provisions.
Illustration
The tax liability of Essem Energy Ltd. for the financial year 2018-19 under the normal
provisions of the Income-tax Act is Rs. 18,40,000 and the liability as per the provisions of MAT
is Rs. 18,00,000. It has brought forward MAT credit of Rs. 2,00,000. Can the company adjust the
MAT credit? If, yes then how much and what will be the tax liability of the company after
adjustment of MAT credit?
**

[As amended by Finance Act, 2018]

MAT credit can be adjusted in the year in which the liability of the company as per the normal
provisions is more than the MAT liability. In this case the liability as per the normal provisions
of the Income-tax Act is Rs. 18,40,000 and the liability as per the provisions of MAT is Rs.
18,00,000. Liability as per the normal provisions is more than liability as per the provisions of
MAT and, hence, the company can adjust the MAT credit.
The set off in respect of brought forward MAT credit shall be allowed in the subsequent year(s)
to the extent of the difference between the tax on total income as per the normal provisions and
liability as per the MAT provisions. Thus, after set off of MAT credit, the liability of the
company cannot be less than liability as per the provisions of MAT. In this case, the liability as
per MAT is Rs. 18,00,000, and, hence, after claiming set off of the MAT credit, the liability of
company cannot be less than Rs. 18,00,000. Hence, out of the credit of Rs. 2,00,000 the company
can claim credit of Rs. 40,000 only and the balance credit of Rs. 1,60,000 can be carried forward
to next year(s).
Period for which MAT credit can be carried forward
As discussed earlier, the company can carry forward the MAT credit for adjustment in
subsequent year(s), however, the MAT credit can be carried forward only for a period of 15
years after which it will lapse. In other words, if MAT credit cannot be utilised by the company
within a period of 15 years (immediately succeeding the assessment year in which such credit
was generated), then such credit will lapse. No interest is paid to the taxpayer in respect of such
credit.
Report from chartered accountant
Every company to whom the provisions of section 115JB applies is required to obtain a report
from a chartered accountant in Form No. 29B certifying that the book profit has been computed
in accordance with the provisions of section 115JB. The report should be obtained on or before
due date of filing the return of income. Audit report in Form No. 29B shall be filed
electronically.
Provisions relating to AMT
The provisions of MAT are applicable to a corporate taxpayer only. The provisions relating to
AMT are applicable to non-corporate taxpayers in a modified pattern in the form of Alternate
Minimum Tax, i.e., AMT. Thus, it can be said that MAT applies to companies and AMT applies
to a person other than a company. The provisions relating to AMT are given in sections 115JC to
115JF.
Basic provisions relating to applicability of the AMT to different taxpayers
The provisions of AMT will apply to every non-corporate taxpayer who has claimed (i)
deduction under section 80H to 80RRB (except 80P), (ii) deduction under section 35AD and (iii)
deduction under section 10AA. Thus, the provisions of AMT are not applicable to a non-
corporate taxpayer who has not claimed any deduction under above discussed sections. However,
following points should be kept in mind in this regard.
 The provisions of AMT shall apply to an 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 only if the adjusted total income (discussed later) of such person
exceeds Rs. 20,00,000.(Section 115JEE)

[As amended by Finance Act, 2018]

  The provisions of AMT shall apply to every other person (i.e., other than an individual or
a HUF or an AOP/BOI or an artificial juridical person) irrespective of its income. For
definition of a person refer to section 2(31).
Rate of AMT
In case of non-corporate taxpayer, AMT is levied @ 18.5% of adjusted total income (discussed
later). Surcharge and cess as applicable will also be levied.
However, AMT is levied @ 9% in case of a non-corporate assessee being a unit located in
International Financial Services Centre and deriving its income solely in convertible foreign
exchange. Surcharge and cess as applicable will also be levied. (Applicable from Assessment
Year 2019-20)
Meaning of adjusted total income
In case of a non-corporate taxpayer, adjusted total income is computed in following manner :
Particulars (Rs.)
Taxable income of the taxpayer XXXX
Add:Amount of deduction claimed under section 80H to XXXX
80RRB (except 80P)
Add: Amount of deduction claimed under section 35AD (as XXXX
reduced by the amount of depreciation allowable in
accordance with the provisions of section 32)
Add:Amount of deduction claimed under section 10AA XXXX
Adjusted total income XXXX

Tax liability in case of a non-corporate taxpayers to whom the provisions of AMT apply
As per the concept of AMT, the tax liability of a non-corporate taxpayer to whom the provisions
of AMT applies will be higher of the following:
 Tax liability computed as per the normal provisions of the Income-tax Law, i.e., tax
computed on the taxable income of the taxpayer atthe tax rate applicable to him. Tax
computed in above manner can be termed as normal tax liability.
 Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income.
The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted
total income is called AMT.
Note: AMT is levied @ 9% in case of a non-corporate assessee being a unit located in
International Financial Services Centre and deriving its income solely in convertible foreign
exchange. Surcharge and cess as applicable will also be levied. (Applicable from Assessment
Year 2019-20)

[As amended by Finance Act, 2018]

Illustration
The taxable income for the year 2018-19 of Mr. Kumar (resident and age 39 years) computed as
per the provisions of Income-tax Act is Rs. 28,40,000. The taxable income has been computed
after deduction of Rs. 2,00,000 under section 80QQB in respect of royalty on books. Will he be
liable to AMT? What will be his tax liability for the year?
**
The provisions of AMT shall apply to a non-corporate taxpayer if he has made any claim for
deduction under section 80H to 80RRB (except section 80P), under section 35AD and under
section 10AA. Further, the provisions of AMT shall apply to an 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 only if the adjusted total income of such person exceeds Rs. 20,00,000.
In this case, Mr. Kumar has claimed deduction under section 80QQB and his adjusted total
income exceeds Rs. 20,00,000 and, hence, the provisions of AMT will apply to him.
By applying the provisions of AMT, the tax liability of Mr. Kumar will be higher of the
following:
 Tax liability computed as per the normal provisions of the Income-tax Law, i.e., tax
computed on the taxable income of the taxpayer by applying the tax rate applicable to
him. Tax computed in above manner can be termed as normal tax liability.
 Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income.
The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted
total income is called AMT.
His taxable income is Rs. 28,40,000, tax on Rs. 28,40,000 by applying the tax rates applicable to
an individual below the age of 60 years for the assessment year 2019-20 works out to Rs.
6,64,500. Tax liability after health & education cess of 4% would work out to Rs. 6,91,080.
Adjusted total income will come to Rs. 30,40,000 (Rs. 28,40,000 + Rs. 2,00,000, i.e., deduction
under section 80QQB). AMT @ 18.5% on Rs. 30,40,000 will come to Rs. 5,62,400. AMT
liability after health & education cess of 4% will come to Rs. 5,84,896.
From the above computation it can be observed that the liability as per the normal provisions of
the Income-tax Act is more than the liability as per the provisions of AMT and, hence, the tax
liability of Mr. Kumar will be Rs. 6,91,080.
Illustration
The taxable income for the financial year 2018-19 of Mr. Ajay (resident and age 34 years)
computed as per the provisions of Income-tax Act is Rs. 20,84,000. The taxable income has been
computed after deduction of Rs. 5,00,000 under section 80JJA. Will he be liable to AMT? What
will be his tax liability for the year?
**
The provisions of AMT shall apply to a non-corporate taxpayer if he has made any claim for
deduction under section 80H to 80RRB (except section 80P), under section 35AD and under
section 10AA. Further, the provisions of AMT shall apply to an 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 only if the adjusted total income of such person exceeds Rs. 20,00,000.

[As amended by Finance Act, 2018]

In this case, Mr. Ajay has claimed deduction under section 80JJA and his adjusted total income
exceeds Rs. 20,00,000 and, hence, the provisions of AMT would apply to him.
By applying the provisions of AMT, the tax liability of Mr. Ajay will be higher of the following:
 Tax liability computed as per the normal provisions of the Income-tax Law, i.e., tax
computed on the taxable income of the taxpayer by the tax rate applicable to him. Tax
computed in above manner can be termed as normal tax liability.
 Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income.
The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted
total income is called AMT.
His taxable income is Rs. 20,84,000, tax on Rs. 20,84,000 by applying the tax rates applicable to
an individual below the age of 60 years for the assessment year 2019-20 works out to Rs.
4,37,700. Tax liability after health & education cess of 4% would work out to Rs. 4,55,208.
Adjusted total income will come to Rs. 25,84,000 (Rs. 20,84,000 + Rs. 5,00,000, i.e., deduction
under section 80JJA). AMT @ 18.5% on Rs. 25,84,000 will come to Rs. 4,78,040. AMT liability
after cess of 4% will come to Rs. 4,97,162.
From the above computation it can be observed that the liability as per the provisions of AMT is
more than the liability as per the normal provisions and, hence, the tax liability of Mr. Ajay
would work out to Rs. 4,97,162 (i.e., as per AMT). The excess tax paid by Mr. Ajay on account
of AMT can be claimed as AMT credit and can be carried forward for adjustment to next year(s)
[provisions relating to AMT credit are discussed later].

AMT credit
As discussed in earlier part, a non-corporate taxpayer to whome the provisions of AMT applies
has to pay higher of normal tax liability or liability as per the provisions of AMT. If in any year
the taxpayer pays liability as per AMT, then he is entitled to claim credit in the subsequent
year(s) of AMT paid above the normal tax liability.
Provided that where the amount of Foreign Tax Credit (‘FTC’) allowed against the AMT
exceeds the amount of such FTC admissible against the tax payable by the assessee under normal
provisions of the Income-Tax Act, then, while computing the amount of FTC under this sub-
section, such excess amount shall be ignored.
Illustration
The tax liability of Essem Enterprises (a partnership firm) for the financial year 2018-19 under
the normal provisions of the Income-tax Act is Rs. 8,40,000 and the liability as per the
provisions of AMT is Rs. 10,00,000. Will it be entitled to claim any AMT credit in the
subsequent year(s)?
**
A non-corporate taxpayer paying AMT is entitled to claim the credit of AMT paid in excess of
normal tax liability. In this case the liability of Essem Enterprises for the financial year 2018-19
under the normal provisions is Rs. 8,40,000 and as per the provisions of AMT is Rs. 10,00,000

[As amended by Finance Act, 2018]

(which is higher than normal tax liability) and, hence, the firm has to pay Rs. 10,00,000, i.e.,
liability as per AMT provisions.
If in any year, the taxpayer pays liability as per AMT, then it can claim AMT credit of the excess
of AMT paid over the normal tax liability. In this case, the liability of AMT is higher, hence, the
firm will be entitled to claim AMT credit of Rs. 1,60,000 (being excess of AMT over normal tax
liability of Rs. 8,40,000).
Adjustment of carried forward AMT credit
As discussed earlier, a non-corporate taxpayer to whom the provisions of AMT applies is entitled
to claim AMT credit of excess AMT paid over the normal tax liability. The credit of AMT can
be utilised by the taxpayer in the subsequent year(s). The credit can be adjusted in the year in
which the liability of the taxpayer as per the normal provisions is more than the AMT liability.
The set off in respect brought forward AMT credit shall be allowed in the subsequent year(s) to
the extent of the difference between the tax on his total income as per the normal provisions and
the liability as per the AMT provisions.
Illustration
The tax liability of Essem Enterprises (a partnership firm) for the financial year 2018-19 under
the normal provisions of the Income-tax Act is Rs. 18,40,000 and the liability as per the
provisions of AMT is Rs. 18,00,000. It has brought forward AMT credit of Rs. 2,00,000. Can the
firm adjust the AMT credit? If yes, then how much and what will be the tax liability of the firm
after adjustment of AMT credit?
**
The AMT credit can be adjusted in the year in which the liability of the non-corporate taxpayer
to whom the provisions of AMT applies as per the normal provisions is more than the AMT
liability. In this case, the liability as per the normal provisions of the Income-tax Act is Rs.
18,40,000 and the liability as per the provisions of AMT is Rs. 18,00,000. Liability as per the
normal provisions is more than liability as per the provisions of AMT and, hence, the firm can
adjust the AMT credit.
The set off in respect of brought forward AMT credit shall be allowed in the subsequent year(s)
to the extent of the difference between the tax on his total income as per the normal provisions
and the liability as per the AMT provisions. Thus, after set off of the AMT credit, the liability of
the firm cannot be less than liability as per the provisions of AMT. In this case, the liability as
per AMT is Rs. 18,00,000, and, hence, after claiming set off of the AMT credit, the liability of
the firm cannot be less than Rs. 18,00,000. Hence, out of the credit of Rs. 2,00,000 the firm can
claim credit of Rs. 40,000 only and the balance credit of Rs. 1,60,000 can be carried forward to
next year(s).
Period for which AMT credit can be carried forward
As discussed earlier, a non-corporate taxpayer (to whom the provisions of AMT applies) can
carry forward the AMT credit for adjustment in subsequent year(s), however, the AMT credit
can be carried forward only for a period of 15 years after which it will lapse. In other words, if
AMT credit cannot be utilised by the non-corporate taxpayer within a period of 15 years
(immediately succeeding the assessment year in which such credit was generated), then such
credit will lapse. No interest is paid to the taxpayer in respect of such credit.

[As amended by Finance Act, 2018]

Report from Chartered Accountant
Every non-corporate taxpayer to whom the provisions of AMT apply is required to obtain a
report from a chartered accountant in Form No. 29C on or before the due date of filing the return
of income.

[As amended by Finance Act, 2018]

 MCQ on AMT and MAT

Q1.MAT stands for ___________

(a) Minimum Alternate Tax (b) Minimum Allowed Tax
(c) Minimum Applicable Tax (d) Minimum Adjustable Tax
Correct answer : (a)
Justification of correct answer :
MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax. Initially
the concept of MAT was introduced for companies and progressively it has been made
applicable to all other taxpayers in the form of AMT.
Thus, option (a) is the correct option.
Q2.AMT stands for ___________
(a) Applicable Minimum Tax (b) Adjustable Minimum Tax
(c) Alternate Minimum Tax (d) Allowed Minimum Tax
Correct answer : (c)
Justification of correct answer :
MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax. Initially
the concept of MAT was introduced for companies and progressively it has been made
applicable to all other taxpayers in the form of AMT.
Thus, option (c) is the correct option.

Q3. As per section 115JB, every taxpayer being a company is liable to pay MAT, if the Income-
tax payable on the total income, computed as per the provisions of the Income-tax Act in respect
of any year is less than 15.50% of its book-profit + surcharge (SC) + education cess (EC) +
secondary and higher education cess (SHEC).
(a) True (b) False
Correct answer : (b)
Justification of correct answer :
As per section 115JB, every taxpayer being a company is liable to pay MAT, if the Income-tax
payable on the total income, computed as per the provisions of the Income-tax Act in respect of
any year is less than 18.50% of its book-profit + surcharge (SC) + health & education cess
(HEC).

[As amended by Finance Act, 2018]

Thus, the statement given in the question is false and hence, option (b) is the correct option.
Q4. As per section 115JB(5A) MAT shall not apply to any income accruing or arising to a
company from life insurance business referred to in section 115B.
(a) True (b) False
Correct answer : (a)
Justification of correct answer :
As per section 115JB(5A) MAT shall not apply to any income accruing or arising to a company
from life insurance business referred to in section 115B.
Thus, the statement given in the question is true and hence, option (a) is the correct option.
Q5. The provisions of MAT will apply to shipping income liable to tonnage taxation, i.e.,
tonnage taxation scheme as provided in section 115V to 115VZC.
(a) True (b) False
Correct answer : (b)
Justification of correct answer :
The provisions of MAT will not apply to shipping income liable to tonnage taxation, i.e.,
tonnage taxation scheme as provided in section 115V to 115VZC.
Thus, the statement given in the question is false and hence, option (b) is the correct option.
Q6. As per Explanation 1 to section 115JB(2) "book profit" for the purposes of section 115JB
means net profit as shown in the statement of profit and loss prepared in accordance with
_______of the Companies Act as increased and decreased by certain items prescribed in this
regard.
(a) Schedule V (b) Schedule III
(c) Schedule IV (d) Schedule I
Correct answer : (b)
Justification of correct answer :
As per Explanation 1 to section 115JB(2) "book profit" for the purposes of section 115JB means
net profit as shown in the statement of profit and loss prepared in accordance with Schedule III
to the Companies Act, 2013 as increased and decreased by certain items prescribed in this
regard.
Thus, option (b) is the correct option.
Q7. If in any year the company pays liability as per MAT, then it is entitled to claim credit of
MAT paid over and above the normal tax liability in the subsequent year(s).
(a) True (b) False
Correct answer : (a)

[As amended by Finance Act, 2018]

Justification of correct answer :
If in any year the company pays liability as per MAT, then it is entitled to claim credit of MAT
paid over and above the normal tax liability in the subsequent year(s). The provisions relating to
carry forward and adjustment of MAT credit are given in section 115JAA.
Thus, the statement given in the question is true and hence, option (a) is the correct option.
Q8. In case of non-corporate taxpayer, AMT is levied @ _______% of adjusted total income.
(a) 20.00 (b) 18.50
(c) 15.00 (d) 10.00
Correct answer : (b)
Justification of correct answer :
In case of non-corporate taxpayer, AMT is levied @ 18.5% of adjusted total income
Thus, option (b) is the correct option.
Q9.Every non-corporate taxpayer to whom the provisions of AMT apply is required to obtain a
report from a chartered accountant in Form No. _____ on or before the due date of filing the
return of income
(a) 29 (b) 29A
(c) 29B (d) 29C
Correct answer : (d)
Justification of correct answer :
Every non-corporate taxpayer to whom the provisions of AMT apply is required to obtain a
report from a chartered accountant in Form No. 29C on or before the due date of filing the return
of income
Thus, option (d) is the correct option.

[As amended by Finance Act, 2018]