ALTERNATIVE MINIMUM TAX

Alternative Minimum Tax (AMT) ensures that non-corporate taxpayers claiming significant deductions still contribute a baseline tax to the exchequer. With Union Budget 2026 retaining the framework under Chapter XII-BA of the Income-tax Act, AMT continues to apply to individuals, HUFs, AOPs, BOIs, firms, LLPs, and similar non-corporate persons claiming specified deductions in FY 2026-27.

What is AMT

AMT is governed by Sections 115JC to 115JF of the Income-tax Act. The provisions require non-corporate taxpayers to compute an Adjusted Total Income, apply a special rate, and pay the higher of regular income tax and AMT. The concept mirrors Minimum Alternate Tax (MAT) applicable to companies, but with different parameters.

Adjusted Total Income computation

• Start with total income computed under regular provisions
• Add back deductions claimed under Sections 80H to 80RRB (excluding Section 80P) of Chapter VI-A
• Add deductions claimed under Section 10AA (SEZ units)
• Add deduction claimed under Section 35AD as reduced by the depreciation that would have been allowable
• Result: Adjusted Total Income

AMT rate and applicability threshold

AMT is levied at 18.5% (plus surcharge and cess) on Adjusted Total Income. For LLPs in IFSC units deriving income solely in convertible foreign exchange, a concessional rate of 9% applies. AMT applies only where Adjusted Total Income exceeds ₹20 lakh in the case of individuals, HUFs, AOPs, BOIs, and artificial juridical persons. For firms, LLPs, and other non-corporates, AMT applies irrespective of income.

AMT credit and carry forward

Where AMT is paid in excess of regular tax, the excess is allowed as AMT credit under Section 115JD. The credit can be carried forward for fifteen assessment years and set off in any year where regular tax exceeds AMT, to the extent of such excess. The taxpayer must obtain Form 29C, a report from a Chartered Accountant certifying the AMT computation, before filing the return.

Interplay with new tax regime

Importantly, AMT does not apply to individuals and HUFs opting for the new tax regime under Section 115BAC, since Chapter VI-A deductions (other than Section 80CCD(2) and Section 80JJAA) are not available. This is a key reason why many small professionals and businesses choose the new regime — it removes AMT exposure simultaneously.

Compliance steps

1. Identify whether the taxpayer is in the new regime; if yes, AMT generally not applicable
2. Compute regular tax under the old regime with all eligible deductions
3. Compute Adjusted Total Income and AMT at 18.5%
4. Pay the higher of regular tax and AMT
5. Furnish Form 29C with the income-tax return
6. Track AMT credit available for the next fifteen years

Sectors where AMT typically bites

AMT typically affects partnerships and LLPs operating in SEZ units (Section 10AA), specified-business assessees claiming Section 35AD, and professionals or small businesses in eligible categories claiming heavy Chapter VI-A deductions like Section 80-IA, 80-IB, 80-IC, or 80JJAA. Founders moving income into LLP structures to leverage exemptions often find AMT eroding the gains unless modelled carefully at the planning stage.

AMT credit utilisation strategy

• Track AMT credit available year-on-year, similar to MAT credit for companies
• Plan capital expenditure to align with years where regular tax may exceed AMT
• Avoid letting credit lapse beyond fifteen assessment years
• Reconcile credit balance during partnership dissolution or LLP restructuring
• Disclose AMT credit prominently in the financial statements as a deferred tax asset

Old regime vs new regime decision lens

For an LLP or partnership firm claiming Section 10AA or 35AD, AMT is a structural cost. Compare three scenarios: regular tax under the old regime with AMT, regular tax under the new regime where applicable, and a restructured ownership where the activity moves to a corporate entity subject to MAT. Each has different liquidity and credit-carry-forward implications. Run the comparison annually with current year financials before finalising the return.

Audit and disclosure obligations

Form 29C is signed by a Chartered Accountant after detailed verification of the Adjusted Total Income computation, deductions claimed, and tax credits. Maintain workpapers for every adjustment with reference to the relevant section. Disclose AMT credit available as a deferred-tax asset in the balance sheet where the assessee maintains audited accounts. Sound documentation is the bedrock of credit utilisation in future profitable years.

AMT and the new tax regime decision

Founders running professional practice LLPs often weigh the new tax regime against the old regime with AMT exposure. The decision turns on the magnitude of Chapter VI-A deductions, SEZ status, and the timing of expected capital expenditure. Run the comparison annually because slab rates, surcharge, and cess for both regimes interact differently with AMT. A well-modelled choice typically yields visible savings.

Conclusion

AMT keeps high-deduction taxpayers honest while preserving the integrity of incentive provisions. Before claiming SEZ, 35AD, or Chapter VI-A deductions, model AMT exposure carefully, decide between the old and new regimes consciously, and maintain Form 29C documentation. Done well, AMT credit becomes a real asset on the personal balance sheet.