Background of AMT under Income-tax Act, 1961

Alternative minimum tax (AMT) as a concept was introduced in the income tax law to preserve the tax base vis-à-vis profit-linked deductions. The memorandum to Finance Bill (FB) 2011 also articulated this objective. The intention of the legislature was reiterated in FB 2012 when the provisions were extended beyond LLPs to other persons as well. The relevant extract is as mentioned below:

“In order to widen the tax base vis-à-vis profit linked deductions, it is proposed to amend provisions regarding AMT contained in Chapter XII-BA in the Income-tax Act to provide that a person other than a company, who has claimed deduction under any section (other than section 80P) included in Chapter VI-A under the heading “C – Deductions in respect of certain incomes” or under section 10AA, shall be liable to pay AMT.”

Further, to fortify the above objective a specific Section 115JEE was inserted:

“(1) The provisions of this Chapter shall apply to a person who has claimed any deduction under—

(a) any section (other than section 80P) included in Chapter VI-A under the heading “C.—Deductions in respect of certain incomes”; or

(b) section 10AA.

(2) The provisions of this Chapter shall not apply to 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 sub-clause (vii) of clause (31) of section 2, if the adjusted total income of such person does not exceed twenty lakh rupees.”

Accordingly, AMT was applicable to the LLPs which were claiming tax holidays under Chapter VI-A under the heading “C.—Deductions in respect of certain incomes”. Subsequently, Section 115JEE(1) was amended to include deduction under Section 35AD as well.

AMT under Income Tax Bill, 2025

In the Income Tax Bill, 2025 (ITB) the entire AMT and MAT provisions have been consolidated in a single Section 206 of ITB. As per Section 206 of ITB, AMT is applicable if tax payable by the LLP on adjusted income is less than 18.5%. Relevant extract of Section 206 of ITB is as mentioned below:

(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.

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.

There seems to be no carveout similar to Section 115JEE of the IT Act, restricting the applicability to only those LLPs which are claiming tax holidays/ specified deductions. Hence, based on the current language of the Section 206 of ITB, it appears that AMT has been extended to all the LLPs.

In case AMT has been extended to all the LLPs, whether it will have significant impact on LLPs having LTCG (taxable at 12.5%) has been discussed in the following case studies:

Case Study 1: Comparison of Company v LLP (assuming LLP only has LTCG)

An LLP has earned only LTCG and is not claiming any tax holidays. The net income after taxes is required to repatriated to the Partners. The impact of ITB on such an LLP and comparison of same with a Company is illustrated below :

On perusal of the above, it is evident that overall, even though LTCG is subject to a higher tax due to AMT, the LLP structure remains more efficient from a repatriation standpoint.

Case Study 2: Impact based on average tax rate

In Scenario 1: LLPs have an equal proportion of LTCG and Other income such that average tax rate is higher than 18.5%

In Scenario 2: LLPs have higher LTCG as compared to Other income such that average tax rate is lower than 18.5%

AMT applies only if the average tax rate of the LLP exceeds 18.5% (plus applicable surcharge and cess). Hence, if LLP has higher average rate of income tax, like in Scenario 1, there may not be any impact of the ITB. However, if average rate of income tax is lower than 18.5%, then the LLP can have higher outflow of taxes under ITB as illustrated in Scenario 2 above.

Concluding remarks:

As mentioned by CBDT in various forums, the intention of the new ITB is to simplify the provisions of the law and there are no changes in tax rates or tax policy. Accordingly, AMT should not be extended to LLPs not claiming any tax holidays of specified deductions. Hence, it would be a welcome move if a clarification is issued in this regard.

Disclaimer : Views expressed are personal