Alternative minimum tax was introduced to ensure that everyone contributes a reasonable share of tax. It also ensures that similar taxpayers are treated in a similar way. It makes sure that high-income individuals and entities pay at least a minimum level of tax, even after claiming various deductions. The idea is simple—those earning substantial profits should not altogether avoid taxes through incentive-based deductions.
By setting this minimum threshold, AMT prevents the complete erosion of taxable income through excessive benefits. Let’s now understand how AMT works within India’s income tax framework and who it applies to.
What is AMT in Income Tax?
Alternative minimum tax comes into effect when taxpayers claim profit-linked or investment-based deductions that substantially lower their taxable income. Instead of allowing such income to fall below a reasonable threshold, the AMT provision mandates a minimum tax payment calculated on the Adjusted Total Income (ATI).
Currently, AMT is charged at 18.5% of ATI, plus applicable surcharge and cess. This ensures that taxpayers enjoying significant deductions still contribute a fair share to government revenue. By doing so, AMT helps maintain uniformity across income groups and prevents the misuse of tax incentives while continuing to support genuine business growth.
Applicability of Alternative Minimum Tax in India
AMT applies selectively based on the taxpayer’s category and income level.
It covers:
- Individuals, HUFs, Association of Persons (AOPs), Body of Individuals (BOIs), and artificial juridical persons whose adjusted total income exceeds ₹20,00,000 in a financial year
- All other non-corporate taxpayers, like LLPs and partnership firms, regardless of their income level (if they claim the specified deductions)
- Companies are already covered under a separate provision called the Minimum Alternate Tax (MAT), and hence are exempt from AMT
However, AMT comes into play only when such taxpayers claim specific deductions, including:
- Profit-linked deductions under Chapter VI-A (excluding Section 80P for cooperative societies)—typically for sectors like hotels, exports, and small-scale industries
- 100% deduction of capital expenditure for certain businesses (like cold chain facilities or fertilizer production) under Section 35AD
- Deductions for SEZ units under Section 10AA
So, if a taxpayer benefits from any of these deductions and meets the income threshold or is an LLP/partnership firm, AMT ensures they still pay a fair share of tax.
Next, let’s look at how this minimum tax is actually calculated.
How AMT is Calculated Under the Income Tax Act
Calculating AMT involves three main steps: determining the adjusted total income, calculating the AMT liability, and then comparing it with the regular tax.
Calculating Adjusted Total Income
| Particulars | Amount |
| Total income as per normal provisions | ₹XXX.X |
| Add: Deductions claimed under Chapter VI-A (80H to 80RRB, excluding 80P) | ₹XXX.X |
| Add: Deduction claimed under Section 10AA | ₹XXX.X |
| Add: Deduction under Section 35AD (as reduced by the normal depreciation under Section 32) | ₹XXX.X |
| Adjusted Total Income (ATI) | ₹XXX.X |
Calculating AMT Liability
| Particulars | Amount |
| Adjusted total income (ATI) | ₹XXX.X |
| AMT Rate (18.5%) | ₹XXX.X × 18.5% |
| Add: Surcharge and Health & Education Cess (as applicable) | ₹XXX.X |
| Total AMT Payable | ₹XXX.X |
Once both regular tax and AMT are computed, the taxpayer must pay whichever is higher. This ensures consistency between regular taxpayers and those benefiting from multiple tax incentives.
Now that we’ve understood the calculation process, let’s identify who exactly needs to pay AMT in India.
Who Should Pay AMT in India?
The applicability of AMT differs across entities depending on how the taxpayers earn and report income.
For Individuals, HUFs, AOPS, and Artificial Juridical Persons
Individuals, HUFs, AOPs, and Artificial Juridical Persons claiming profit-linked deductions and whose adjusted total income exceeds ₹20,00,000 fall under AMT. However, if their ATI is below this limit, AMT does not apply.
For LLPs and Partnerships
For LLPs and partnership firms, the AMT provisions apply directly, irrespective of whether their adjusted total income exceeds ₹20,00,000, provided they claim any of the specified profit-linked or investment-based deductions.
For Companies
Companies are not required to pay AMT, as they already fall under the minimum alternate tax regime, which serves a similar purpose.
So, while AMT and MAT serve parallel objectives, they apply to different classes of taxpayers.
Let’s now understand the essential exemptions and credits that come along with AMT.
Key Exemptions and Provisions Related to AMT
AMT rules are not meant to burden small taxpayers. Hence, certain exemptions and relief mechanisms exist, as outlined below.
- Income threshold: Individuals, HUFs, AOPs, BOIs, and artificial juridical persons are exempt if their adjusted total income is ₹20,00,000 or less in a financial year.
- AMT credit carry forward: If a taxpayer pays AMT in one year, but the regular tax is higher in subsequent years, the excess AMT (AMT minus Regular Tax Liability) can be adjusted against the regular tax in future.
- Carry forward period: This credit can be carried forward for up to 15 assessment years from the year of payment.
- Credit adjustment: The AMT credit can only be used to the extent that regular tax exceeds the AMT in the future year.
This system ensures that while minimum tax is collected when due, taxpayers are not penalized for it in the long run.
Conclusion
The alternative minimum tax serves as a mechanism to balance tax incentives with fairness in India’s taxation system. It ensures that while taxpayers can benefit from genuine deductions encouraging growth and investment, they also contribute a reasonable share of tax to the government.
By setting a minimum tax threshold, AMT discourages misuse of exemptions without discouraging legitimate business activities. Understanding its applicability and calculation helps taxpayers plan efficiently, avoid compliance issues, and maintain transparency in their financial practices. Ultimately, AMT promotes fiscal responsibility and equitable tax contribution across different income groups.
