Do you know how much tax you have to pay on your income in India? If you are a company or a non-corporate taxpayer, you may have to pay MAT or AMT. These are two types of minimum taxes that apply to certain taxpayers who claim tax exemptions and deductions. MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax.
In this blog post, we will explain what MAT and AMT are, how they are calculated, and how they affect your tax liability in 2023-24. We will also give you some tips on how to save tax with MAT and AMT credits.
What is MAT and How is it Calculated?
MAT is a minimum tax that applies to companies that pay little or no tax on their profits due to tax exemptions and deductions. The purpose of MAT is to ensure that these companies pay a fair share of tax to the government.
MAT is calculated at 15% (plus surcharge and cess) of the book profit of the company, which is the net profit as per the financial statements. The book profit is adjusted by adding back depreciation, deferred tax, provisions, etc. and deducting the exempt income, such as dividends, capital gains, agricultural income, etc.
For example, suppose a company has a net profit of Rs. 100 lakhs and a normal tax liability of Rs. 15 lakhs. The company has claimed depreciation of Rs. 20 lakhs, deferred tax of Rs. 10 lakhs, and provision for bad debts of Rs. 5 lakhs. The company has also earned dividend income of Rs. 15 lakhs, which is exempt from tax. The book profit and the MAT of the company are as follows:
Book Profit=100+20+10+5−15=120 lakhs
MAT= 15%×120+12%×15%×120+4%×(15%×120+12%×15%×120)=20.97 lakhs
The surcharge is 12% of the MAT amount if the book profit exceeds Rs. 1 crore.
The cess is 4% of the MAT amount plus the surcharge.
If the MAT is higher than the normal tax liability, the company has to pay the MAT amount as tax. The company can claim credit for the excess MAT paid in future years when the normal tax liability exceeds the MAT.
What is AMT and How is it Calculated?
AMT is similar to MAT, but it applies to non-corporate taxpayers, such as individuals, HUFs, AOPs, BOIs, LLPs, etc. AMT applies to these taxpayers who claim certain deductions and exemptions under Chapter VI-A (such as Section 80C, 80D, 80G, etc.) or Section 10AA (relating to special economic zones).
The purpose of AMT is to ensure that these taxpayers pay a minimum amount of tax and do not avoid tax by claiming excessive deductions and exemptions. AMT is calculated at 18.5% (plus surcharge and cess) of the adjusted total income of the taxpayer, which is the total income after adding back the deductions and exemptions that are claimed under Chapter VI-A or Section 10AA.
For example, suppose an individual has a total income of Rs. 50 lakhs, which includes a salary income of Rs. 40 lakhs and a business income of Rs. 10 lakhs. The individual has claimed a deduction of Rs. 1.5 lakhs under Section 80C, Rs. 25,000 under Section 80D, and Rs. 50,000 under Section 80G. The individual has also claimed a deduction of Rs. 5 lakhs under Section 10AA, as the business is located in a special economic zone. The adjusted total income and the AMT of the individual are as follows:
Adjusted Total Income=50+1.5+0.25+0.5+5=57.25 lakhs
AMT=18.5%×57.25+15%×18.5%×57.25+4%×(18.5%×57.25+15%×18.5%×57.25)=12.67 lakhs
The surcharge is 15% of the AMT amount if the adjusted total income exceeds Rs. 50 lakhs.
The cess is 4% of the AMT amount plus the surcharge.
If the AMT is higher than the normal tax liability, the taxpayer has to pay the AMT amount as tax. The taxpayer can claim credit for the excess AMT paid in future years when the normal tax liability exceeds the AMT.
AMT does not apply to individual taxpayers whose adjusted total income is less than Rs. 20 lakhs. Also, from 2023-24, the rate of AMT is reduced from 18.5% to 15% for co-operative societies.
How do MAT and AMT Affect your Tax Liability in 2023-24?
MAT and AMT increase your tax liability if they are higher than your normal tax liability. However, you can save tax by claiming credit for the excess MAT or AMT paid in future years, when your normal tax liability exceeds the MAT or AMT amount. This credit can be carried forward for up to 15 years and can be set off only against the normal tax liability.
The formula for tax credit is as follows:
Tax Credit=MAT or AMT Amount−Normal Tax Liability
For example, suppose a company has a book profit of Rs. 120 lakhs and a normal tax liability of Rs. 15 lakhs. The MAT amount of the company is Rs. 20.97 lakhs. The company has to pay the MAT amount as tax, as it is higher than the normal tax liability. The tax credit for the company is Rs. 5.97 lakhs. The company can carry forward this tax credit for up to 15 years and set it off against the normal tax liability in future years.
Similarly, suppose an individual has an adjusted total income of Rs. 57.25 lakhs and a normal tax liability of Rs. 10 lakhs. The AMT amount of the individual is Rs. 12.67 lakhs. The individual has to pay the AMT amount as tax, as it is higher than the normal tax liability. The tax credit for the individual is Rs. 2.67 lakhs. The individual can carry forward this tax credit for up to 15 years and set it off against the normal tax liability in future years.
The MAT and AMT rates for 2023-24 are the same as the previous year, i.e., 15% for MAT and 18.5% for AMT (except for cooperative societies, for which the AMT rate is reduced to 15%). But, there are some changes in the normal tax rates for 2023-24, which may affect your tax liability and tax credit. These changes are as follows:
- For individuals, HUFs, AOPs, and BOIs, the normal tax rates are as follows:
| Total Income | Tax Rate |
|---|---|
| Up to Rs. 2.5 lakhs | Nil |
| From Rs. 2.5 lakhs to Rs. 5 lakhs | 5% |
| From Rs. 5 lakhs to Rs. 10 lakhs | 20% |
| Above Rs. 10 lakhs | 30% |
- For cooperative societies, the normal tax rates are as follows:
| Total Income | Tax Rate |
|---|---|
| Up to Rs. 10,000 | 10% |
| From Rs. 10,000 to Rs. 20,000 | 20% |
| Above Rs. 20,000 | 30% |
- For companies, the normal tax rates are as follows:
| Type of Company | Tax Rate |
|---|---|
| Domestic company with turnover up to Rs. 400 crores | 25% |
| Domestic company with turnover above Rs. 400 crores | 30% |
| Foreign company | 40% |
How to Save Tax with MAT and AMT Credits in 2023-24?
Now that we have understood how MAT and AMT affect your tax liability in 2023-24, let us look at some tips and strategies to save tax with MAT and AMT credits.
Here are some dos and don’ts for claiming MAT and AMT credits:
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Do file your income tax return on time and claim the MAT or AMT credit in the prescribed form (Form 29B for MAT and Form 29C for AMT).
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Do keep track of the MAT or AMT credit that you have claimed and carried forward in the previous years, and the balance that is available for set off in the current year.
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Do check the normal tax liability and the MAT or AMT amount for the current year, and compare them to decide whether to pay the normal tax amount or the MAT or AMT amount as tax.
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Do set off the MAT or AMT credit against the normal tax liability, if the normal tax liability is higher than the MAT or AMT amount, and reduce your tax payable.
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Do carry forward the remaining MAT or AMT credit, if any, for up to 15 years, and use it in future years when the normal tax liability.
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Do carry forward the remaining MAT or AMT credit, if any, for up to 15 years, and use it in future years when the normal tax liability exceeds the MAT or AMT amount.
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Don’t pay the MAT or AMT amount as tax, if the normal tax liability is higher than the MAT or AMT amount, as this will result in double taxation and loss of tax credit.
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Don’t claim the MAT or AMT credit against the MAT or AMT amount, as this is not allowed and will lead to the rejection of your claim.
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Don’t forget to mention the MAT or AMT credit that you have claimed or carried forward in your income tax return, as this will help you avoid any penalty or interest for under-reporting of income or tax.
Apart from claiming MAT and AMT credits, you can also save tax by planning your income and expenses in such a way that you can reduce your book profit or adjusted total income, and thereby reduce your MAT or AMT amount.
Here are some tips and strategies to optimize your tax planning:
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If you are a company, you can opt for the new tax regime under Section 115BAA or 115BAB, which offers a lower tax rate of 22% or 15% (plus surcharge and cess) for domestic companies, subject to certain conditions. However, if you opt for this regime, you will have to forego most of the tax exemptions and deductions that are available under the normal tax regime, and you will not be liable to pay MAT. Therefore, you should compare the benefits and drawbacks of both regimes and choose the one that suits your business best.
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If you are a non-corporate taxpayer, you can opt for the new tax regime under Section 115BAC, which offers a lower tax rate for individuals, HUFs, AOPs, BOIs, and cooperative societies, subject to certain conditions. If you opt for this regime, you will have to forego most of the tax exemptions and deductions that are available under the normal tax regime, and you will not be liable to pay AMT. Therefore, you should compare the benefits and drawbacks of both regimes and choose the one that suits your income best.
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If you are eligible for any tax incentives or concessions under the normal tax regime, such as a deduction for investment in specified sectors, deduction for research and development expenditure, deduction for employment generation, etc., you should claim them and reduce your taxable income and tax liability. But, you should also consider the impact of these deductions on your book profit or adjusted total income, and the corresponding MAT or AMT amount. You should claim these deductions only if they result in overall tax savings for you.
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If you have any losses or unabsorbed depreciation from the previous years, you should set them off against your current year’s income and reduce your taxable income and tax liability. You should also consider the impact of these losses or depreciation on your book profit or adjusted total income, and the corresponding MAT or AMT amount. You should set off these losses or depreciation only if they result in overall tax savings for you.
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If you have any income that is exempt from tax, such as dividends, capital gains, agricultural income, etc., you should report them in your income tax return and claim the exemption. You should also consider the impact of this income on your book profit or adjusted total income, and the corresponding MAT or AMT amount. You should report this income only if it results in overall tax savings for you.
These are some of the ways to save tax with MAT and AMT credits in 2023-24. But, you should always consult a tax expert or a chartered accountant before making any tax-related decisions, as the tax laws and rules are complex and subject to change. You should also keep yourself updated with the latest developments and notifications from the income tax department and the government.
Got your Answers?
In this blog post, we have discussed the topic of MAT and AMT rates in India and how to plan your taxes accordingly. We have explained what MAT and AMT are, how they are calculated, and how they affect your tax liability in 2023-24. We have also given you some tips on how to save tax with MAT and AMT credits. We hope that this blog post has helped you understand the concept and calculation of MAT and AMT, and how to optimize your tax planning with MAT and AMT credits. Happy learning!
