Companies have to prepare their book profits based on the guidelines given by Income Tax Department. So, it has been noticed that the profits shown by them to their stakeholders and another for tax purposes vary a lot. The profits for tax purposes are almost nil or very less to avoid tax. To avoid the situation, government has designed different options so that a minimum amount of tax is paid for sure. And two of them are Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT). Though the terms seems to be same by name but actually they differ in the area they are applicable, calculation process and few others as you will read below.
As described for income tax purposes, there are specific guidelines according to which the book profits are calculated on which income tax is levied. Minimum Alternate Tax (MAT) is the minimum tax paid by companies even if they show lesser profits. According to the rules, if the taxable income of the company computed for previous year is less than 30% of the book profits, than the tax imposed is 30% of such book profits.
In other case, earlier it was noticed that Limited Liability Partnerships (LLP) present the best business options in terms of tax since they do not have to maintain the book profits. So, many businessmen tried to convert it in that form. But now after budget 2011-12, there has been changes and they have to pay AMT (Alternate Minimum Tax). AMT is levied at the rate of 18.5% on the adjusted total income of LLP. Including the education cess, the tax implied will be equivalent to 19.05%.
Though in both the cases, MAT and AMT there are set off and carry forward benefits available. It can be carried forward to maximum of 10 years. Though the credit allowed will not be applicable for any interest.
The difference between MAT and AMT are as stated in the table below:
|Tax Imposed on||Company||Limited Liability Partnership (LLP)|
|Imposed when||MAT is imposed when calculated income tax of a company is less than MAT||AMT is to be paid by an LLP if the tax calculated on adjusted total income is less than AMT|
|Section||115JB(1) Chapter – XII – B||115JC Chapter – XII – BA|
|Tax Rate||18.5% of profits + 5% surcharge + 3% education cess or equivalent to 20%||18.5% of income + 3% education cess or equivalent to 19.05% (surcharge is not applicable for an LLP)|
|Tax Credit||Equal to the excess of amount of MAT paid as compared to the regular tax.||Equal to the excess of amount of AMT paid as compared to the calculated tax on adjusted income of LLP.|