Alternative Minimum Tax (AMT) is like a backup tax system. It ensures that even people or companies who use too many tax breaks still pay a minimum amount of tax.
Why AMT Exists
Some taxpayers reduce their regular tax so much using deductions and exemptions that they pay very little tax—or none at all. AMT makes sure they still pay a basic minimum tax, even after using those breaks.
Who Has to Pay AMT?
Individuals (including HUFs, AOPs, BOIs):
- AMT applies only if:
- Your adjusted total income is more than ₹20 lakh, and
- You claim certain deductions like:
- 10AA (SEZ units)
- 35AD (specified business deductions)
- 80-IA to 80RRB (except 80P)
Companies:
- AMT used to apply to companies not paying Minimum Alternate Tax (MAT).
- But now, MAT and AMT rules are mostly separated—AMT applies more to non-corporate taxpayers.
Formula to Calculate AMT
AMT=18.5% of Adjusted Total Income
Adjusted Total Income means:
= Total income + deductions claimed under sections like 10AA, 35AD, etc.
If AMT is more than your regular tax, then you must pay AMT instead.
Example
- Your regular income tax: ₹2 lakh
- But your adjusted income (after adding back 35AD deductions) is ₹25 lakh
- AMT = 18.5% of ₹25 lakh = ₹4.625 lakh
Since ₹4.625 lakh > ₹2 lakh, you must pay ₹4.625 lakh as AMT.
AMT Credit
If you paid AMT this year (more than regular tax), the extra amount becomes a tax credit.
You can adjust it in future years when your regular tax is higher.
- AMT Credit is valid for 15 years
- You can use it only when regular tax > AMT
Key Points Summary
| Feature | Details |
|---|---|
| Applies To | Individuals, HUFs, AOPs, BOIs (not firms) |
| Income Threshold | ₹20 lakh or more |
| Tax Rate | 18.5% + surcharge + cess |
| Trigger Conditions | Use of specific deductions like 10AA, 35AD |
| Credit Available? | Yes – AMT Credit for 15 years |
Exceptions
- If you don’t claim any of the special deductions, AMT won’t apply—no matter how high your income is.
- Companies under MAT don’t worry about AMT.
