The Alternate Minimum Tax Rule That Stops Zero-Tax Loopholes - Section 115JC

Every year when you file your income tax return, you probably look for ways to reduce your tax liability — deductions, exemptions, incentives, or business benefits. That’s fair. The law allows it.

But there’s a small catch: sometimes, even a highly profitable business ends up paying little or no tax after claiming all deductions. To ensure everyone pays a minimum fair share, the government introduced something called the Alternate Minimum Tax, or AMT.

Think of it as a safety net. Even if your normal tax calculation comes out to zero, AMT ensures you still pay a basic minimum tax.

What Is AMT in Simple Terms?

Under normal tax rules, you calculate tax based on your total income after applying deductions. AMT steps in when these deductions are too large & reduce your taxable income drastically.

In short — AMT is a minimum tax leviable alternatively to normal tax. It’s part of an alternative taxation system that ensures a minimum contribution to the tax pool.

So, if your regular tax is less than the AMT calculated on your adjusted total income, you’ll pay the higher one.

How Is AMT Calculated?

The formula is pretty straightforward. The Alternate Minimum Tax is 18.5% of your adjusted total income, plus the applicable surcharge & cess.

Here’s how it works:

1. Start with your total income as per the regular computation.
2. Add back deductions claimed under specific sections such as 10AA, 35AD, and certain Chapter VI-A provisions.
3. Apply the 18.5% rate (plus surcharge & cess).

That gives you your AMT liability.

If this AMT amount is higher than your regular income tax, you’ll pay the AMT instead.

Also Read: 100% Deduction on Capital Expenditure for Specified Businesses

When Does AMT Apply?

The good news is — AMT doesn’t apply to everyone. It’s triggered only when your adjusted total income exceeds ₹20 lakh.

Here’s who generally falls under AMT:

• Individuals, HUFs, AOPs, and BOIs claiming deductions under Sections 80H to 80RRB (except 80P).
• Taxpayers claiming Section 10AA deduction (SEZ units)."
• Businesses availing Section 35AD benefits for capital expenditure on specified activities.

If you don’t claim such deductions, AMT won’t affect you at all.

A Quick Example

Let’s make this practical.

Say Priya, who runs a textile unit in an SEZ, reports an adjusted total income of ₹30 lakh after deductions under Section 10AA."

Here’s what happens:

• Adjusted Total Income: ₹30,00,000
• AMT @18.5% = ₹5,55,000
• Add Cess @4% = ₹22,200
• Total AMT Payable: ₹5,77,200

Now, suppose her normal tax (after deductions) is just ₹2,40,000.
She’ll still need to pay ₹5,77,200 under AMT — because that’s higher.

That’s how AMT ensures that no one walks away with a near-zero tax bill while still earning healthy profits.

Can You Get That Extra Tax Back Later?

Yes, you can — through AMT credit.
The law allows you to carry forward the difference between AMT & regular tax for up to 15 assessment years.

So, if you paid ₹3 lakh more under AMT this year, and in any future year your regular tax exceeds AMT, you can use this credit to reduce that future tax bill.

It’s not lost money — it’s more like paying an advance that you can claim back later.

Also Read: Minimum Alternate Tax (MAT) for Companies

Who Doesn’t Need to Worry About AMT

If your adjusted total income is below ₹20 lakh, you can relax — AMT won’t apply to you.
Also, if you don’t claim deductions under 10AA, 35AD, or specific Chapter VI-A provisions, you’re outside its scope.

Companies, by the way, aren’t under AMT at all. They’re already governed by a similar rule called MAT (Minimum Alternate Tax) under Section 115JB.

Why AMT Exists – The Real Reason

When AMT was introduced, the idea wasn’t to penalize taxpayers but to plug a loophole. The government noticed that several businesses, especially in SEZs or those investing heavily in specific sectors, were claiming so many deductions that their effective tax rate dropped to nearly zero.

That’s not sustainable for a balanced tax system. AMT ensures everyone contributes — maybe not equally, but fairly. It keeps the system clean & credible.

Normal Tax vs. AMT — A Quick Comparison

Real-World Example – Why It Matters

Here’s something I’ve seen in practice.
A client, a partnership firm running a renewable energy unit, had claimed huge deductions under Section 35AD for infrastructure investment. Their normal tax came down to nearly ₹1 lakh — which looked great."

But under AMT, the adjusted income came to ₹45 lakh, making their liability over ₹8 lakh.
It was a shock at first, but when they learned they could carry that credit for 15 years, the perspective changed.

That’s the beauty of AMT — it ensures contribution now but gives flexibility later.

Also Read: Faceless Assessments, Powers, and Best Judgment 

In a Nutshell

The Alternate Minimum Tax (AMT) is not a penalty. It’s a balancing mechanism — ensuring fairness while still encouraging genuine investment & deductions. If you’re claiming multiple exemptions or deductions, it’s smart to calculate AMT before filing. That way, you’ll know what’s coming — and plan your taxes better.

If you’re unsure whether AMT applies to you or how to calculate it accurately, it’s best to take professional help.
At CallMyCA.com, our CA team can review your financials, identify deduction impacts, and guide you through the AMT credit system.

💡 Don’t let complex tax provisions eat into your profits — plan ahead with expert clarity.