Special provision for minimum alternate tax and alternate minimum tax.

206(1)

Irrespective of anything contained in any other provision of this Act, where in the case of an assessee, referred to in column B of Table, the income-tax payable on the total income as computed under this Act in respect of a tax year is less than the percentage referred to in column C of the said Table of book profit in the case of a company or of adjusted total income in any other case, computed as per the provisions of Note to the said Table, then––

• (a) such book profit in the case of a company or such adjusted total income in any other case shall be deemed to be the total income of that assessee for such tax year; and
• (b) the tax payable on such total income shall be at the rate provided in column C of the said Table. ---table--- Note 1:—Adjusted total income, for the purposes of Sl. Nos. 3, 4 and 5 shall be the total income before giving effect to this section, as increased by deductions claimed, if any, under—
• (a) any section (other than section 149) included in Chapter VIII-C;
• (b) section 144; and
• (c) section 46 as reduced by depreciation allowable as per the provisions of section 33, as if no deduction was allowed in respect of the assets on which the deduction under that section is claimed.

206(2)

The book profit under this section shall be computed in the following manner:–– B = P + (I-R) where,–– B = book profit for the purposes of this section; P = profit, as shown in the statement of profit and loss for the relevant tax year prepared as per sub-section (3); I = amounts mentioned in column B of Table below; R = amounts mentioned in column C of said Table. --Table--

206(3)

For the purposes of this section, every company shall prepare its statement of profit and loss for the relevant tax year in the following manner:––

• (a) if it is an insurance or banking company, or a company engaged in the generation or supply of electricity, or any other class of company for which a form of financial statement has been specified under the enactment governing such class of company, as per the provisions of such enactment;
• (b) in all other cases, as per the provisions of Schedule III to the Companies Act, 2013.

206(4)

While computing the book profit under sub-section (2), the following amounts shall be further adjusted:–– --Table-- Note 1: Other comprehensive income in the statement of profit and loss under the head “Items that will not be re-classified to profit or loss”, excluding— (i) revaluation surplus for assets as per the Indian Accounting Standards 16 and Indian Accounting Standards 38; or (ii) gains or losses from investments in equity instruments designated at fair value through other comprehensive income as per the Indian Accounting Standards 109; and the amount or the aggregate of the amounts referred to in clause (a) (i) and (ii) for the tax year or any of the preceding tax years, and relatable to such asset or investment, in the tax year in which the said asset or investment referred to in clause (a) is retired, disposed, realised or otherwise transferred. Note 2: on distribution of non-cash assets to shareholders in a demerger as per Appendix A of the Indian Accounting Standards 10. Note 3: sub-section (19)(f)(ii) to (v) relatable to such asset or investment, in the tax year in which the asset or investment referred to in such sub-clauses is retired, disposed, realised or otherwise transferred. Note 4: sub-section (19)(f)(ii) to (v) relatable to such foreign operations, in the tax year in which the foreign operation referred to in such sub-clause is disposed or otherwise transferred.

206(5)

In case of a person, being a company, while preparing the annual accounts including statement of profit and loss,—

• (a) the accounting policies;
• (b) the accounting standards adopted for preparing such accounts including statement of profit and loss; and
• (c) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including statement of profit and loss and laid before the company at its annual general meeting as per the provisions of section 129 of the Companies Act, 2013, or correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including statement of profit and loss for, such financial year or part of such financial year falling within the relevant tax year, where the company has adopted or adopts the financial year under the which is different from the tax year under this Act.

206(6)

The provisions of this section shall not be applicable to any assessee, being a foreign company, where––

• (a) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in section 159(1) or the Central Government has adopted any agreement under section 159(2) and the assessee does not have a permanent establishment in India as per the provisions of such agreement; or
• (b) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (a) and the assessee is not required to seek registration under any law in force relating to companies; or
• (c) its total income comprises solely of profits and gains from business referred to in section 61(2)(Table: Sl. Nos. 1, 3, 4 and 5), and such income has been offered to tax at the rates specified in the respective sections.

206(7)

In the case of a resulting company, where the property and the liabilities of the undertaking or undertakings being received by it are recorded at values different from the values appearing in the books of account of the demerged company immediately before the demerger, any change in such value shall be ignored for the purpose of computation of book profit of the resulting company under this section.

206(8)

In the case of an assessee being a company, where––

• (a) there is an increase in book profit of the tax year due to income of past year or years included in the book profit on account of–– (i) an advance pricing agreement entered into by the assessee under section 168; or (ii) a secondary adjustment required to be made under section 170; and
• (b) the assessee has not utilised the credit of tax paid under this section in any subsequent tax year under sub-section (13), the Assessing Officer shall, on an application made to him in this behalf by the assessee,–– (i) recompute the book profit of the past year or years and tax payable, if any, by the assessee during the tax year under sub-section (1) in such manner, as prescribed; and (ii) the provisions of section 287 shall, so far as may be, apply and the period of four years specified in sub-sections (7) and (8) of that section shall be reckoned from the end of the tax year in which the said application is received by the Assessing Officer.

206(9)

Irrespective of anything contained in any other provisions of this Act, no interest shall be payable to an assessee on the refund arising on account of the provisions of sub-section (8).

206(10)

In the case of an assessee being a company, nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant tax year to be carried forward to the subsequent year or years under the provisions of––

• (a) section 33(11); or
• (b) section 111; or
• (c) section 112(1); or
• (d) section 113; or
• (e) section 115.

206(11)

Every assessee to which this section applies, shall furnish a report in the prescribed form from an accountant, certifying that the book profit in the case of a company, or adjusted total income in any other case, has been computed as per the provisions of this section––

• (a) before the specified date referred to in section 63; or (b) along with the return of income furnished in response to a notice under section 268(1) in the case of an assessee being a company.

206(12)

Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee mentioned in this section.

206(13)

Where any tax is paid under sub-section (1) by an assessee, then, credit shall be allowed to him of an amount which shall be the difference of the tax paid for any tax year under sub-section (1) and tax payable by the assessee on his total income computed as per the other provisions of this Act.

206(14)

While allowing credit under sub-section (13),––

• (a) no interest shall be payable on the tax credit so allowed; and
• (b) where tax credit in respect of any income-tax paid in any country or specified territory outside India, under section 159(1) or (2), allowed against the tax payable under the provisions of sub-section (1) exceeds such tax credit admissible against the tax payable by the assessee on its income as per the other provisions of this Act, then, while computing the credit under sub-section (13), such excess amount shall be ignored.

206(15)

Tax credit determined under sub-section (13) shall be carried forward and––

• (a) set off in a year, when tax becomes payable on the total income computed as per the provisions of this Act exceeds tax determined under sub-section (1); and
• (b) such set off in respect of brought forward tax credit shall be allowed for any tax year to the extent of the difference between the tax on his total income and the tax which would have been payable under the provisions of sub-section (1) for that tax year, and such carry forward shall not be allowed beyond the fifteenth tax year immediately succeeding the tax year in which the tax credit becomes allowable under sub-section (13).

206(16)

Where as a result of any order passed under this Act, tax payable under this Act is reduced or increased, tax credit allowed under sub-section (13) shall also be increased or reduced accordingly.

206(17)

In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008, the provisions of this section shall not apply to the successor limited liability partnership.

206(18)

The provisions of this section shall not apply to––

• (a) a person, being a company having income accruing or arising from life insurance business referred to in section 194(1)(Table: Sl. No. 6); or
• (b) a person, who has exercised the option under–– (i) section 200(5); or (ii) section 201(2); or (iii) section 203(5); or (iv) section 204(2); or
• (c) a person, whose income-tax payable in respect of the total income of such person is computed under section 202(1); or
• (d) an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person referred to in section 2(77)(g), if the adjusted total income of such person does not exceed twenty lakh rupees; or
• (e) any specified fund referred to in Schedule VI (Note 1).

206(19)

In this section,—

• (a) “Adjudicating Authority” shall have the same meaning as assigned to it in section 5(1) of the Insolvency and Bankruptcy Code, 2016;
• (b) “convergence date” means the first day of the first Indian Accounting Standards reporting period as defined in the Indian Accounting Standards 101;
• (c) “net worth” shall have the meaning assigned to it in section 3(1)(ga) of the Sick Industrial Companies (Special Provisions) Act, 1985, as it stood immediately before its repeal by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003;
• (d) “private company” and “unlisted public company” shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008;
• (e) “securities” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956;
• (f) “transition amount” means the amount or the aggregate of the amounts adjusted in the other equity (excluding capital reserve and securities premium reserve) on the convergence date, but not including the following:— (i) amount or aggregate of the amounts adjusted in the other comprehensive income on the convergence date which shall be subsequently re-classified to the profit or loss; (ii) revaluation surplus for assets as per the Indian Accounting Standards 16 and Indian Accounting Standards 38 adjusted on the convergence date; (iii) gains or losses from investments in equity instruments designated at fair value through other comprehensive income as per the Indian Accounting Standards 109 adjusted on the convergence date; (iv) adjustments relating to items of property, plant and equipment and intangible assets recorded at fair value as deemed cost as per paragraphs D5 and D7 of the Indian Accounting Standards 101 on the convergence date; (v) adjustments relating to investments in subsidiaries, joint ventures and associates recorded at fair value as deemed cost as per paragraph D15 of the Indian Accounting Standards 101 on the convergence date; and (vi) adjustments relating to cumulative translation differences of a foreign operation as per paragraph D13 of the Indian Accounting Standards 101 on the convergence date.
• (g) “Tribunal” shall have the same meaning as assigned to it in section 2(90) of the Companies Act, 2013;
• (h) “Unit” means a unit established in an International Financial Services Centre;
• (i) “year of convergence” means the tax year within which the convergence date falls; and
• (j) a company shall be a subsidiary of another company, if such other company holds more than half in the nominal value of equity share capital of the company.

Explanation

Section Summary:

Section 206 introduces special provisions for Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT). It ensures that companies and certain taxpayers pay a minimum level of tax, even if their taxable income under normal provisions is low due to deductions or exemptions. This section applies when the regular income tax payable is less than a specified percentage of the "book profit" (for companies) or "adjusted total income" (for other taxpayers).

Key Changes:

1. Applicability: The section applies to companies and other taxpayers whose regular tax liability is lower than the specified percentage of book profit or adjusted total income.
2. Adjusted Total Income: For non-corporate taxpayers, adjusted total income is calculated by adding back certain deductions claimed under specific sections (e.g., Chapter VIII-C, Section 144, and Section 46).
3. Book Profit Calculation: For companies, book profit is calculated using a formula: B = P + (I - R), where:
   • B = Book profit,
   • P = Profit as per the profit and loss statement,
   • I = Additions (specific amounts listed in the table),
   • R = Reductions (specific amounts listed in the table).
4. Exclusions: Certain entities, like foreign companies without a permanent establishment in India, are excluded from these provisions.
5. Tax Credit: If tax paid under MAT/AMT exceeds the regular tax liability, the excess can be carried forward as a tax credit for up to 15 years.

Practical Implications:

1. For Companies: Companies must calculate their tax liability under both regular provisions and MAT provisions. If MAT liability is higher, they must pay the higher amount. The excess MAT paid can be carried forward as a tax credit.
2. For Non-Corporate Taxpayers: Adjusted total income is recalculated by adding back certain deductions. If the tax on this adjusted income is higher than the regular tax, the higher amount is payable.
3. Compliance Burden: Taxpayers must ensure accurate computation of book profit or adjusted total income and maintain proper documentation to support calculations.
4. Exemptions: Certain entities, like foreign companies without a permanent establishment in India, are exempt from these provisions.

Critical Concepts:

1. Book Profit: Profit as per the profit and loss statement, adjusted for specific additions and reductions.
2. Adjusted Total Income: Total income before applying this section, increased by certain deductions claimed under specific sections.
3. Tax Credit: The difference between MAT/AMT paid and regular tax liability can be carried forward and set off against future tax liabilities.

Compliance Steps:

1. Compute Regular Tax Liability: Calculate tax liability under normal provisions.
2. Compute MAT/AMT Liability:
   • For companies: Calculate book profit using the formula B = P + (I - R).
   • For non-corporate taxpayers: Calculate adjusted total income by adding back specified deductions.
3. Compare Tax Liabilities: Pay the higher of the regular tax or MAT/AMT.
4. Maintain Documentation: Keep records of calculations, adjustments, and supporting documents.
5. File Required Reports: Submit a report from an accountant certifying the computation of book profit or adjusted total income.

Examples:

1. Company A has a regular taxable income of ₹10 lakh and a book profit of ₹50 lakh. The regular tax liability is ₹3 lakh (30% of ₹10 lakh), but the MAT liability is ₹10 lakh (20% of ₹50 lakh). Company A must pay ₹10 lakh as tax and can carry forward the excess ₹7 lakh as a tax credit.
2. Individual B has a total income of ₹15 lakh but claims deductions under Section 144, reducing taxable income to ₹5 lakh. The regular tax liability is ₹1.5 lakh (30% of ₹5 lakh). Adjusted total income is ₹15 lakh, and the AMT liability is ₹3 lakh (20% of ₹15 lakh). Individual B must pay ₹3 lakh as tax.

This section ensures that taxpayers with significant book profits or adjusted incomes pay a minimum level of tax, even if they benefit from deductions or exemptions under regular tax provisions.