Section 115JC: Alternative Minimum Tax (AMT) for Certain Non-Corporate Assessees

Introduction to Section 115JC

Section 115JC of the Income Tax Act, 1961, introduces the concept of Alternative Minimum Tax (AMT). Similar to Minimum Alternate Tax (MAT) for companies, AMT was enacted to ensure that certain non-corporate assessees, who might otherwise pay very little or no tax due to claiming specific tax incentives, contribute a minimum amount of tax to the government. It aims to broaden the tax base and bring equity in taxation across different types of taxpayers.

For example: An individual running a business might claim significant deductions under special provisions (like those for infrastructure development or scientific research), reducing their normal tax liability to zero. Section 115JC ensures that even such individuals pay a base level of tax on their adjusted income.

Applicability of Section 115JC

Section 115JC is applicable to the following non-corporate assessees:

• Individuals
• Hindu Undivided Families (HUFs)
• Associations of Persons (AOPs)
• Bodies of Individuals (BOIs)
• Artificial Juridical Persons

However, it applies only if such an assessee has claimed a deduction under:

• Any section included in Chapter VIA under the heading "C.—Deductions in respect of certain incomes" (e.g., Sections 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE) other than Section 80P.
• Section 35AD (deduction for expenditure on specified business).
• Section 10AA (deduction for units in Special Economic Zones - SEZs).

If the income tax payable on the total income of such an assessee, computed under the normal provisions of the Act, is less than the AMT payable on their adjusted total income, then the income tax payable for the relevant previous year shall be the AMT. If the normal tax liability is higher than the AMT, then the normal tax liability is paid.

Computation of Alternative Minimum Tax (AMT)

The computation of AMT involves determining the 'adjusted total income' and then applying the prescribed AMT rate. The steps are as follows:

1. Ascertaining Adjusted Total Income:

The adjusted total income is the total income of the assessee as computed under the normal provisions of the Income Tax Act, increased by the following deductions claimed:

• Deductions claimed under any section included in Chapter VIA under the heading "C.—Deductions in respect of certain incomes" (e.g., Sections 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE), excluding Section 80P.
• Deduction claimed under Section 35AD (expenditure on specified business).
• Deduction claimed under Section 10AA (for units in SEZs).

Example of Adjusted Total Income:
Suppose an individual has a Total Income of ₹80 Lakhs as per normal provisions after claiming standard deductions (like 80C, 80D etc.). However, they also claimed the following deductions from their business income, which makes them liable for AMT:
- Deduction under Section 80-IA: ₹20 Lakhs
- Deduction under Section 35AD: ₹15 Lakhs

Calculation of Adjusted Total Income for AMT:
Total Income as per normal provisions: ₹80 Lakhs
Add: Deduction under Section 80-IA: + ₹20 Lakhs
Add: Deduction under Section 35AD: + ₹15 Lakhs
Adjusted Total Income for AMT: ₹115 Lakhs

2. Application of AMT Rate:

Assessee Type / Income	AMT Rate (on Adjusted Total Income)
All assessees covered under Section 115JC	18.5% (plus applicable surcharge and cess)
Assessees located in an International Financial Services Centre (IFSC) earning specified income (e.g., from convertible foreign exchange)	9% (plus applicable surcharge and cess)

Example of AMT Calculation and Comparison:
Let's continue with the example of the individual with **Adjusted Total Income of ₹115 Lakhs**.
- Normal Tax Liability (on ₹80 Lakhs, after all deductions and before any surcharge/cess): ₹17.92 Lakhs (assuming typical slab rates for individuals).

AMT Liability: ₹115 Lakhs @ 18.5% = ₹21.275 Lakhs (before surcharge/cess).

Since AMT Liability (₹21.275 Lakhs) is higher than Normal Tax Liability (₹17.92 Lakhs), the individual will pay ₹21.275 Lakhs (plus surcharge and cess) as tax for the year.

AMT Credit (Section 115JD)

Similar to MAT Credit, Section 115JD provides for AMT Credit. When an assessee pays tax as per AMT (i.e., AMT liability is higher than their normal tax liability), the **excess amount** of AMT paid over the normal tax payable is allowed as AMT Credit. This credit can be carried forward for a period of **15 assessment years** immediately succeeding the assessment year in which the credit became due.

The carried forward AMT credit can be set off against the tax payable in any subsequent year when the normal tax liability of the assessee is **higher** than their AMT liability. The amount of set-off is limited to the difference between the normal tax liability and the AMT liability of that subsequent year.

Example of AMT Credit Utilization:
Continuing the previous example, the individual paid ₹21.275 Lakhs (AMT) instead of ₹17.92 Lakhs (Normal Tax).
AMT Credit Generated: ₹21.275 Lakhs - ₹17.92 Lakhs = ₹3.355 Lakhs.

Now, consider the next financial year:
- Normal Tax Liability for the next year: ₹25 Lakhs
- AMT Liability for the next year: ₹15 Lakhs

Since Normal Tax (₹25 Lakhs) is higher than AMT (₹15 Lakhs), the individual would normally pay ₹25 Lakhs. However, they can utilize their AMT Credit.
Maximum AMT Credit that can be set off: Normal Tax - AMT = ₹25 Lakhs - ₹15 Lakhs = ₹10 Lakhs.

Since the available AMT Credit (₹3.355 Lakhs) is less than the maximum allowable set-off (₹10 Lakhs), the individual can fully utilize ₹3.355 Lakhs of their AMT credit.

Actual Tax Payable for the next year: Normal Tax - AMT Credit utilized = ₹25 Lakhs - ₹3.355 Lakhs = ₹21.645 Lakhs.
In this case, the entire AMT Credit is utilized, and there is no balance to carry forward.

Key Features and Compliance

• Threshold for Applicability: AMT provisions generally do not apply if the adjusted total income of the assessee does not exceed a certain threshold (e.g., ₹20 Lakhs for individuals, HUFs, AOPs, BOIs, artificial juridical persons in the Old Tax Regime, if they have not opted for the New Tax Regime).
• New Tax Regime (Section 115BAC): Assessees opting for the New Tax Regime under Section 115BAC are generally exempt from AMT provisions, as they forgo many deductions and exemptions that lead to AMT applicability.
• Reporting Requirement: Every person to whom Section 115JC applies must obtain a report from a chartered accountant in **Form 56FF**, certifying that the adjusted total income has been computed in accordance with the provisions of Section 115JC. This report must be furnished along with the income tax return.

Importance of Section 115JC

Section 115JC is crucial for maintaining fairness and preventing a situation where high-income non-corporate assessees pay minimal or no tax due to various permissible deductions. By setting a minimum tax threshold, it ensures that all eligible entities contribute their share to the national revenue, promoting a more equitable tax system and supporting government finances. It addresses the issue of "zero tax" for non-corporate entities in a manner similar to how MAT addresses it for companies.