Context:
The Income Tax (No. 2) Bill, 2025, passed by the Lok Sabha, introduces a key structural change in India’s alternative tax regime. It now formally separates Minimum Alternate Tax (MAT) applicable to companies from Alternate Minimum Tax (AMT) applicable to certain non-corporate taxpayers.
Key Highlights of the Amendment:
1. Minimum Alternate Tax (MAT)
- Applicability: Only for companies (including foreign companies) that report low taxable income due to exemptions or deductions.
- Objective: Ensures companies pay a minimum tax even if their regular taxable income is reduced by incentives or exemptions.
2. Alternate Minimum Tax (AMT)
- Applicability: Only for non-corporate taxpayers, including LLPs, partnerships, and individuals, who claim specified deductions under sections such as 10AA or Chapter VI-A.
- Objective: Ensures these taxpayers also contribute a minimum level of tax despite deductions.
3. New Exemption for LLPs
- LLPs whose income consists only of capital gains and who do not claim any specified deductions will now be exempt from AMT.
- Significance: Resolves earlier ambiguity that unintentionally subjected investment-holding LLPs to AMT liability.
What is MAT (Minimum Alternate Tax)?
It ensures that companies paying minimal or no income tax due to exemptions still contribute a base level of tax, typically calculated on their book profits.
- Full Form: Minimum Alternate Tax
- Applicability: Companies (domestic & foreign)
- Purpose: Ensures companies that report low or zero taxable income (after using deductions) still pay a minimum percentage of book profits as tax.
- Current Rate: Around 15% of book profits plus surcharge & cess.
What is AMT (Alternate Minimum Tax)?
Applies to non-corporate taxpayers who claim significant deductions. It ensures they pay a minimum tax preventing complete erosion of their tax liability despite deductions and exemptions.
- Full Form: Alternate Minimum Tax
- Applicability: Non-corporate taxpayers (LLPs, partnerships, individuals, HUFs) who claim specified deductions under the Income Tax Act.
- Purpose: Prevents non-corporates from completely avoiding tax liability by claiming certain deductions; ensures they pay a minimum tax on adjusted total income.
- Current Rate: Around 18.5% plus surcharge & cess.
