Introduction:

Prior to Finance Act,2011, LLPs were not subject to:

  1. Minimum Alternate Tax
  2. Dividend Distribution Tax
  3. Surcharge.

 

Advent of Alternate Minimum Tax:

The Finance Act,2011 has brought in a concept called Alternate Minimum Tax an Akin to Minimum Alternate Tax. Due to this one of the advantages available to LLP is no longer available. This is done by way of  introducing a new chapter XII-BA.

 

Reasons for Introduction of Chapter XII-BA:

As Income tax Act 1961, provides tax neutrality in case of conversion of a private limited company or unlisted public company into a LLP i.e the conversion is not subjected to capital gains subject to fulfillment of certain conditions, there was a scope of tax saving for the corporate bodies falling under the MAT net. In order to preserve the tax base vis-à-vis profit-linked deductions, new chapter XII-BA has been inserted in the Income-tax Act,1961, containing special provisions shall have effect only on LLPs claiming deduction under Chapter VI-A (C), that is, income based deductions or under Section 10AA (deduction available to SEZ units) and not to all LLPs in general.

 

Commencement of new Chapter XII-BA:

It has been made operative from AY 2012-13 i.e from Current FY 2011-12.

 

Applicability:

Since the method given for computation of ‘Adjusted Total Income’ does not add back all the deductions claimed by an LLP into its total income, but only income based deductions given under chapter VI-A (C) or under Section 10AA. Therefore, proposed provisions of AMT shall only affect the LLP claiming any of these deductions.

 

New Chapter XII-BA:

1. 115 JC         Special provisions for payment of tax by CERTAIN LLPs.

2. 115 JD         Tax Credit for AMT

3. 115 JE         Application of other provisions of this Act

4. 115 JF         Interpretation in this chapter.

 

 

Analysis of New Chapter:

    •  Regular Income Tax:

 It is the tax payable by an LLP as per the normal prov of Income tax.

 

    • Adjusted Total Income:

 Total Income of LLP as per the normal provisions and as increased by

(i)                 deductions claimed, if any, under Section 80HH to 80RRB

(ii)               and under Sec.10AA in respect of SEZ units.

 

    • Income Based Deductions:

The income based deductions applicable to LLPs are Sec.80IA, 80IAD, 80IB, 80IC, 80ID, 80IE, 80JJA. The balance deductions in Chapter VI-A (C) are either not applicable to LLPs or omitted or made inoperative due to sunset clause or irrelevant due to applicability on old projects.

 

    • AMT Rate :

It is computed on Adjusted Total Income by applying 18.5% rate of tax. The effective rate after considering edu cess is 19.055%.

 

    • Computation of Adjusted Total Income and AMT: 
Total Income as per normal provisons

XXX

 

Add: Deductions under Sec.80HH to 80RRB Or under Sec.10AA

XX

 

ADJUSTED TOTAL INCOME

XXX

 

AMT i.e 18.5% of Adjusted Total Income

XX

 

    • Credit of AMT:

 Credit can be availed upto 10th Asst.yr succeeding the Asst.yr for which tax credit becomes allowable.

 

    • Advance Tax:

Likewise for MAT, in case of AMT advance tax is payable. Failure to do so will attract interest.

 

This Article was written by Sujeeth Jain  – a Co-Author of Chartered Accountants Corner, a CA Student from Nellore, Andhra Pradesh
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