Section 115JD Of Income Tax Act: A Comprehensive Guide
The primary source of income for the Indian Government comes from taxes paid by individuals, businesses, and other entities. To combat tax evasion and promote compliance, the government offers various exemptions and deductions to taxpayers. However, some companies have exploited these deductions by paying no taxes. The Alternative Minimum Tax (AMT) was established under Section 115JD of the Indian Income Tax Act to address this issue and strike a balance between taxing these zero-tax-paying entities and permitting deductions. This article will provide a detailed overview of Section 115JD, including its applicability and relevant provisions.
Table of content
What is Section 115JD of the Income Tax Act?
Section 115JD of the Income Tax Act indicates the regular tax owed is less than the Alternative Minimum Tax (AMT) liability. In such cases, AMT credit addresses the difference between the tax paid by a regular taxpayer and the AMT. The Income Tax Act of 1961 established Section 115JD to relieve certain taxpayers with accumulated long-term capital gains (LTCG) who wish to reinvest in new capital assets. Additionally, this section allows taxpayers to pursue tax credits for the taxes they have already paid on LTCG, as long as they meet some requirements.
Applicability Of Section 115JD
Section 115JEE - The list below illustrates the relevance of Section 115JD of the Income Tax Act 1961 in accordance with AMT regulations.
It applies when the total adjusted income of individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), or Bodies of Individuals (BOIs) exceeds Rs 20 lakh.
It is unique compared to other entities regardless of the revenue a business generates.
This situation applies only to taxpayers in the categories mentioned earlier.
When a taxpayer requests a deduction by Sections 80H and 80RRB (not including Section 80P).
If a taxpayer claims Section 35AD as a deduction.
When a taxpayer seeks a deduction as per Section 10AA.
Provisions Of Section 115JD
Various regulations apply under Section 115JD. For the fiscal year 2023-24, which corresponds to the assessment year 2024-25, the provisions are as follows:
Section 115JD(1)
According to Section 115JD(1), individuals who have met their tax responsibilities under Section 115JC can claim tax credits as specified in this section.
Section 115JD(2)
According to Section 115JD(2), any amount paid as an alternate minimum tax that exceeds the regular income tax obligation for a particular assessment year will be included in the tax credit referred to in subsection (1). The allowable tax credit for the taxpayer's regular income tax obligation is calculated, confirming it does not surpass the credit available for any income tax paid in a foreign country or specified territory outside of India, as outlined in sections 90, 90A, or 91. This credit applies to the alternate minimum tax liability.
Section 115JD(3)
No interest is charged on the tax credit provided under subsection (1).
Section 115JD(4)
The tax credit evaluated in paragraph (2) is carried forward and applied according to the guidelines in subsections (5) and (6). However, this carry-forward is allowed only for the first fifteen assessment years following the assessment year in which the tax credit under subsection (2).
Section 115JD(5)
In any assessment year where the regular income tax obligation is higher than the alternative minimum tax, the tax credit reduces the gap between the two taxes, and you can carry over any unused credit to subsequent years.
Section 115JD(6)
Any changes to the regular income tax or alternate minimum tax, as dictated by orders issued under this Act, will also affect the eligibility for tax credits under this section.
Section 115JD(7)
People who choose to pay taxes under the new system outlined in section 115 BAC(1A), as well as cooperative societies under sections 115BAD or 115BAE, do not need to compute and pay taxes according to the rules in section 115JC and are also ineligible for tax credits under section 115JD.
The mentioned regulations offer taxpayers a just and adaptable framework for handling their tax obligations in various situations.
Tax Calculation under Section 115JD
Steps for calculating taxes when the alternative minimum tax provisions are applicable:
Step 1: Determine the standard income tax liability for the non-corporate taxpayer without considering the stipulations of Sections 115JC to 115JF.
Step 2: Determine the adjusted total income of the non-corporate taxpayer.
Step 3: If the adjusted total income from Step 2 is more than Rs 1 crore but less than Rs 2 crore, apply a tax rate of 19.24% (which is 18.5% plus 4% Cess) or 22.126% ( which is 18.5% plus 15% Levy plus 4% Cess) to calculate the alternative minimum tax.
Step 4: Assess the tax liability determined in Step 1 against the alternative minimum tax determined in Step 3. The Alternative Minimum Tax regulations will not be applicable if the amount calculated in Step 1 is higher than, equal to, or exceeds the amount calculated in Step 3.
Step 5: If the amount determined in Step 1 is lower than in Step 3, the non-corporate taxpayer will have a tax obligation for those prior years. In this case, the difference between Steps 1 and 3 is a credit, which can be carried over and applied to the non-corporate taxpayer's regular tax liability in the following year or years.
How to Make an AMT Credit Claim under Section 115JD?
The Alternative Minimum Tax (AMT) recovers taxes from corporations that do not pay taxes and provides a consistent revenue source for the general treasury. In a fiscal year, a minimal tax applies when the regular tax is less than the AMT. However, if the AMT is lower than the average tax in the upcoming financial years, the AMT paid in a previous budgetary year can be carried forward and subtracted from the average to the difference between the regular excise and the AMT. The remaining balance after a set-off carried over to subsequent fiscal years (FYs). This concept is known as "AMT Credit." The requirements for qualifying for AMT credit are as follows.
The credit should start and continue for the fifteen assessment years.
No interest can apply to this credit.
The tax credit under Section 115JD is adjusted if an order issued under the Income Tax Act changes the amount of regular income tax or any Alternative Minimum Tax (AMT).
Once the taxpayer has received a deduction under provision 10AA, section 35AD, or chapter VI-A, they utilise any carried-forward AMT credit during the financial year, regardless of whether their total net income is below Rs 20 lakhs.
Benefits of Section 115JD
Section 115JD offers various advantages for companies participating in a merger or demerger. Some of these benefits include:
Business Continuity: Section 115JD includes measures protecting the continuity during an amalgamation or demerger. It allows for the carry forward of accumulated losses and unabsorbed depreciation to offset the income of the merged or resulting company, thereby lowering the tax burden.
No Loss of Tax Advantages: The clause guarantees that the merger or demerger will not result in the loss of the tax advantages that were previously available to the merging or demerged company. Tax benefits are obtained by carrying forward and deducting the accrued losses and unabsorbed depreciation from the combined or resulting company's income.
Tax Liability Reduction: The clause helps lower the combined or resulting company's tax obligation. The combined or resulting company's income can offset the accumulated losses and unabsorbed depreciation, which reduces the taxable income and, consequently, the tax obligation.
Promotes Amalgamation and Demerger: Section 115JD relieves businesses of the tax obligation for accrued losses and unabsorbed devaluation, and encourages mergers and acquisitions.
Conclusion
Section 115JD of the Income Tax Act, 1961 allows companies that have experienced a merger or demerger to carry forward and offset their accumulated losses and unabsorbed depreciation. This section specifies the criteria for these losses and depreciation to be carried forward and set off. The purpose of this provision is to offer support to companies undergoing amalgamation or demerger, ensuring that their losses and unabsorbed depreciation are conserved during the transition.
FAQ
Q1. What is section 115JD in income tax?
Section 115 JD of the Income Tax Act specifies that the Alternative Minimum Tax (AMT) must be paid if the standard tax liability is lower than the tax due under AMT. Any discrepancy between the regular taxpayer's tax and the AMT paid is an AMT credit.
Q2. Are businesses subject to AMT?
All taxpayers, except for businesses, are obligated to pay AMT.
Q3. What is the furthest period that I can carry AMT credit forward to?
You can carry over the AMT credit for up to 15 years before it expires. Additionally, taxpayers do not receive any interest on this credit.
Q4. Who is liable to pay tax under AMT?
AMT applies to the following entities: Individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), Bodies of Individuals (BOI), or Artificial Judicial Persons with a total adjusted income exceeding Rs 20,000,000.
Q5. What is the limit of AMT in income tax?
The AMT rules do not apply to individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), Bodies of Individuals (BOI), or artificial judicial entities if their adjusted total income is below Rs 20,00,000. When a minimum tax is imposed in a financial year, it is lower than the AMT.
Q6. How to calculate taxable AMT?
The tax calculated in the previously mentioned way is the tax liability. The AMT regulates by applying a rate of 18.5% (along with any applicable surcharge and cess) to the adjusted total income.
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