No AMT at 18.5% on income above Rs 20 Lakh in the new regime. Should we choose?

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Alternative Minimum Tax (AMT) vs New Income Tax Regime: The effective tax rate is higher under the new regime compared to the AMT. In the new regime, a taxpayer loses the benefit of deferral and offsetting of tax credits, compared to the ordinary tax regime and the AMT.

Alternative minimum tax vs new income tax regime: In the 2020 finance bill, the government proposed to insert Article 115BAC, which offers the possibility for individuals and the Hindu undivided family (HUF) to pay taxes at reduced rates if they do not benefit incentives or deductions specified and meet certain conditions. Individuals or HUFs will not be required to pay the Alternative Minimum Tax (AMT) if they opt for the new concessional tax regime. Will individuals or HUF benefit from opting for a new regime instead of opting for AMT? FE Online spoke with experts to get an answer. But first, let’s understand what AMT is,

According to Sameer Mittal, Managing Partner, Sameer Mittal & Associates LLP, AMT is the minimum tax that a taxpayer must pay, even if he or she does not have to pay tax under normal income tax provisions. Income.

The AMT entered into force in 2011. It was made applicable to all non-legal person taxpayers according to a modified model. The AMT consisted of a natural person, an undivided Hindu family (HUF), an association of persons (AOP), a group of persons (BOI) (incorporated or not), an artificial legal person, a limited liability company ( LLP), a partnership, etc. Mittal said.

“The alternative minimum tax (AMT) is a special tax that prevents non-legal persons with high incomes from abusing deductions and paying little or no income tax,” he added.

Archit Gupta, Founder and CEO of ClearTax, said: “Alternative Minimum Tax (AMT) is payable by an individual or other taxpayer, other than a business. The AMT is levied to ensure that the taxpayer who claims various tax incentives pays a minimum amount of tax.

Gupta said a taxpayer should compare the tax payable under the regular provisions and under the AMT. In case the ordinary tax is lower, the taxpayer must file an income tax return by paying the AMT.

AMT rate and tax credit

The AMT is levied at 18.5% (plus tax and surcharge) on the adjusted total income arrived after removal of the request for tax deductions and exemptions. Gupta said this rate is lower than the top tax rate of 30 percent. The taxpayer is entitled to a tax credit of the excess of AMT paid over ordinary income tax payable. The credit is deferral and compensable for a period of 15 years, the year in which the ordinary income tax payable exceeds the AMT payable for that year.

Where the AMT applies

According to Mittal, the provisions of the AMT will apply to any taxpayer other than a company who has claimed:

  • Deduction under Articles 80H to 80RRB (except 80P): Deductions relating to the profits and gains of specific industries such as hospitality, small industrial enterprises, housing projects, export activities, infrastructure development , etc.
  • Deduction under Article 35AD: Under this deduction, a deduction of 100% is allowed on capital expenditure incurred for specific activities such as the operation of a cold chain installation, the production of fertilizers, etc.
  • Deduction under Article 10AA: A deduction from profits varying from 100% to 50% is granted to units of special economic zones (SEZs).

“Thus, the provisions of the AMT do not apply to a taxpayer other than a corporation that has not claimed any deduction under the aforementioned articles,” Mittal said.

When the AMT is not applicable

According to Gupta, the AMT does not apply to an individual, an undivided Hindu family (HUF), an association of persons (AOP), a body of individuals (BOI) and an artificial legal person whose total adjusted income does not exceed Rs 20,000,000.

The 2020 Finance Bill proposed an alternative tax regime under the new Article 115BAC for individual taxpayers and HUFs. The new regime provides for lower tax rates and removes tax exemptions and deductions, in a manner similar to the AMT. The benefit of lower tax rates is offered for those taxpayers in the Rs 5 to 15 lakh income bracket.

AMT vs new tax system: comparison

Gupta said AMT provisions do not apply to income up to Rs 20 lakh. Therefore, when comparing the new regime with the AMT, for income above Rs 20 lakh, the effective tax rate works as follows:

“Thus, the effective tax rate is higher under the new regime compared to the AMT. The tax rate increases with increasing income. In addition, under the new regime, a taxpayer loses the benefit of deferral and offsetting of tax credits, compared to the regular tax regime and AMT, ”Gupta said.

No tax credit in the New Regime

According to Gupta, the provisions of the AMT allow for a tax credit by comparing the regular tax with the AMT each year. “However, in the case of the new regime, a corporate taxpayer cannot join and withdraw from the new regime every year. A taxpayer company that withdraws from the new regime cannot register again and must pay taxes under the usual provisions. “

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