Understanding AMT: A Simple Guide for Taxpayers in India

Understanding AMT: A Simple Guide for Taxpayers in India

You might be paying your taxes correctly yet still owe more under a lesser-known rule: the Alternative Minimum Tax (AMT). Created to target tax avoidance by high earners, the AMT has evolved into something that can unexpectedly affect professionals, investors, and even employees of startups. This guide unpacks the logic behind the AMT, who it impacts today, and how you can check if it’s on your radar.

What is Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax, or AMT, is exactly what it sounds like — a safeguard to make sure certain taxpayers don’t end up paying little to no tax after claiming a host of deductions. While initially introduced to target high-income individuals through aggressive tax planning, the AMT also applies to businesses and professionals who claim specific deductions under the Income Tax Act today.

Think of it as a parallel tax calculation. Once you've completed your regular tax calculations, the system checks again — this time under Alternative Minimum Tax (AMT) rules. If your tax payable under AMT is higher than your normal tax liability, that’s the amount you’ll end up paying.

Applicability of AMT Under Section 115JC

Section 115JC defines who AMT applies to — and it’s not just big corporates. If you're an individual, HUF, AOP, BOI, partnership firm, or LLP, and you're claiming deductions under Section 10AA (like SEZ units) or Section 35AD (for capital expenditure on specified businesses), AMT may kick in.

But there’s a threshold. AMT applies only if your adjusted total income exceeds ₹20 lakh in a financial year. So, if you’re a small business owner or professional claiming those deductions and earning above that limit, you’ll need to calculate AMT to ensure compliance.

Calculating Adjusted Total Income for AMT 

• Start with your total income calculated under normal tax provisions
• Add back deductions claimed under:
  • Section 10AA (SEZ units)
• Section 35AD (capital expenditure on specified businesses)
• Sections 80H to 80RRB (excluding 80P) under Chapter VI-A
• The result is your Adjusted Total Income (ATI)
• If ATI exceeds ₹20 lakh, AMT provisions apply
• Calculate tax under both regular and AMT provisions
• Pay the higher of the two amounts
• This ensures minimum tax is paid, even after availing exemptions

AMT Rates and Computation

Once AMT applies, calculate tax by using the relevant AMT rate to your adjusted total income. Compare it with your regular tax liability. The higher of the two becomes your final tax payable under the law.

Standard AMT Rate

The standard rate of AMT is 18.5% of the adjusted total income. This rate applies before surcharge and cess. If this tax is higher than your regular income tax, you are liable to pay the AMT amount.

Special Rates for Units in IFSC

For units operating in International Financial Services Centres (IFSCs) and earning entirely in foreign exchange, a concessional Alternative Minimum Tax (AMT) rate of 9% applies. This lower rate promotes global financial activities from within India’s IFSC zones.

AMT Credit and Its Utilization

• If you pay tax under AMT, the excess over regular tax becomes an AMT credit
• This credit can be carried forward for up to 15 assessment years
• You can use this credit in years where regular tax exceeds AMT
• AMT credit helps offset future tax liabilities but cannot be claimed as a refund
• Accurate tracking of credit claimed and used is essential for compliance
• The credit amount must be disclosed in your income tax return every year
• Proper records must be maintained to support future set-off claims

How to Claim AMT

• Identify if AMT applies based on your adjusted total income and claimed deductions
• Calculate both regular tax and AMT — and pay whichever is higher
• Use the correct ITR form (like ITR-3 or ITR-5) based on your taxpayer category
• Submit Form 29C if claiming Section 10AA deductions (mandatory CA certification)
• Disclose all deductions and add-backs in your return
• Maintain documents supporting the computation of ATI and AMT
• Track AMT credit in your return for carry-forward and future utilization

Compliance Requirements Under Section 115JC

Section 115JC outlines the key compliance rules for individuals and entities liable to pay the Alternative Minimum Tax (AMT). If your adjusted total income exceeds ₹20 lakhs and you've claimed specified deductions, you must compute the Alternative Minimum Tax (AMT) and fulfil certain filing requirements. 

This includes disclosing adjusted income, paying the correct tax, maintaining supporting documentation, and submitting Form 29C with certification from a Chartered Accountant. Non-compliance can result in penalties and disqualification from AMT credit carry-forward benefits.

Filing Form 29C

Form 29C is a mandatory declaration for taxpayers claiming deductions like Section 10AA. It confirms the computation of adjusted total income and the Alternative Minimum Tax (AMT). This form must be certified by a Chartered Accountant and submitted before the due date of filing your income tax return.

Role of Chartered Accountant in Certification

A Chartered Accountant is required to certify Form 29C after verifying the computation of adjusted total income and tax payable under AMT. Their role is crucial in ensuring compliance with Section 115JC and validating that all deductions and add-backs are accurately reported.

FAQs on Alternative Minimum Tax (AMT)

What is the purpose of the Alternative Minimum Tax (AMT)?

AMT ensures that taxpayers claiming major deductions still pay a minimum tax. It prevents high-income individuals and entities from reducing their tax liability excessively through exemptions and incentives.

Who is required to pay AMT under Section 115JC? 

Non-corporate taxpayers whose adjusted total income exceeds ₹20 lakh and who claim specified deductions, such as Section 10AA or 35AD, are required to compute and pay the Alternative Minimum Tax (AMT), if applicable.

Who is eligible for Alternative Minimum Tax? 

Individuals, HUFs, firms, LLPs, AOPs, or BOIs claiming deductions under Section 10AA, 35AD, or certain Chapter VI-A sections, with adjusted total income above ₹20 lakh, are subject to AMT.

What is the current rate of AMT applicable? 

The standard AMT rate is 18.5% of the adjusted total income. A lower rate of 9% applies to units in International Financial Services Centres (IFSCs) earning exclusively in foreign exchange.

Can AMT credit be carried forward and utilized in future years?

Yes. AMT credit can be carried forward for up to 15 assessment years and used to offset future tax when your regular tax exceeds your AMT in any eligible year.

AN Jul 38/25