Key Changes in the Income Tax (IT) Bill, 2025
- The Bill broadens the scope of the Alternative Minimum Tax (AMT) for taxpayers other than companies, notably LLPs and partnership firms.
- Currently, LTCG (Long-Term Capital Gains) is taxed at a preferential rate of 12.5% under AMT calculation.
- The new Bill proposes removal of this special treatment, potentially raising the effective tax rate to 18.5%, increasing tax liability.
Omission in the New Bill
- The Bill omits a provision from the IT Act, 1961, which limited AMT applicability to those claiming Chapter VIA deductions (such as donations, infrastructure profits, employment generation incentives).
- This omission means AMT may now apply to all LLPs and partnership firms, regardless of whether they claim deductions, including those with pure capital gains.
Consolidation and Applicability
- In the new IT Bill, AMT and MAT (Minimum Alternate Tax) have been merged into Section 206.
- Section 206 states: AMT applies if tax payable by an LLP on adjusted income is less than 18.5%, with no specific carve-outs.
Implications
- LLPs and partnerships investing in capital assets could face a significant tax hike.
- Particularly impacts investment-focused LLPs and structures holding long-term assets.
Government Response
- The Central Board of Direct Taxes (CBDT) has invited suggestions from stakeholders regarding the Bill’s provisions and rules.
- Stakeholder input will be compiled and forwarded to the Select Committee for review.
Quick Reference: Current vs Proposed AMT Treatment
| Aspect | Current Law (IT Act, 1961) | Proposed (IT Bill, 2025) |
|---|---|---|
| LTCG tax rate under AMT | 12.5% preferential rate | Special treatment removed; likely taxed at 18.5% |
| Applicability limited to | Entities claiming Chapter VIA deductions | No limitation; likely applies to all LLPs and partnership firms |
| Relevant section | Separate provisions, with carve-outs (like Section 115JEE) | Consolidated under Section 206, without clear carve-outs |
The Income Tax Bill, 2025, if passed without amendments, could raise taxes on LLPs and partnership firms, especially those earning LTCG. Industry stakeholders are calling for clarification or correction to avoid unintended taxation consequences.
Source: BS
