Alternate Minimum Tax

Tax law hands out deductions and concessional rates, and a taxpayer who collects enough of them can drive an ordinary tax bill down to very little. The Alternate Minimum Tax is the floor underneath that. It recomputes the liability at a flat rate on a wider base, and if that figure is higher, that is what gets paid.

The part that catches AIF investors is the companion rule: where AMT applies to a unitholder, the income receivable from the Fund has to be brought into the AMT computation. Pass-through status exempts the income at the fund level. It does not exempt the investor from the floor.

And the name is a trap in itself. AMT is for non-corporates. Its corporate twin, with the same two words in the other order, is Minimum Alternate Tax.

The mechanism is a two-column comparison for the tax year:

1. Compute tax under the normal provisions of the Income Tax Act.
2. Compute AMT: 18.5% of adjusted total income (15% in the case of a co-operative society), plus applicable surcharge and health and education cess.
3. Pay the higher of the two.
4. Where AMT was the higher, the excess becomes AMT credit, carried forward for 15 years and set off in a later year in which normal tax exceeds AMT.

AMT does not apply where the assessee has exercised the options under sections 202, 203 or 204 of the Income Tax Act, 2025, subject to certain exceptions.

The corporate counterpart. MAT is levied on domestic companies where tax at 14% of book profits (plus surcharge and cess) exceeds tax under the normal provisions — a rate the workbook attributes to the Finance Act 2026 with effect from 1 April 2026 — with life insurance companies and certain others excluded. A company that opts into the concessional regime under sections 205 and 201 is outside MAT altogether, and forfeits any carried-forward MAT credit on exercising that option. MAT credit also runs 15 years. MAT does not apply to a foreign company that is resident in a treaty country without a permanent establishment in India, or resident in a non-treaty country and not required to register under Indian corporate law.

AMT            = 18.5% × Adjusted total income        (15% for a co-operative society)
                 + applicable surcharge
                 + health and education cess

Tax payable    = higher of ( Normal tax , AMT )

AMT credit c/f = AMT − Normal tax            carried forward up to 15 years

The corporate twin, for contrast:

MAT            = 14% × Book profits + surcharge + cess     (domestic companies)

Meridian Capital LLP — a non-corporate assessee — holds units in a Rs 400 crore Category II AIF. For the tax year:

Step 1 — normal tax.

6.00 × 12.5%  =  Rs 0.750 crore
2.00 × 30%    =  Rs 0.600 crore
              =  Rs 1.350 crore
+ 4% health and education cess   =  Rs 1.404 crore

Step 2 — AMT. The adjusted total income, which must include the income receivable from the Fund, works out to Rs 8 crore.

18.5% × 8.00  =  Rs 1.480 crore
+ 4% cess     =  Rs 1.5392 crore

Step 3 — pay the higher. Rs 1.5392 crore against Rs 1.404 crore, so AMT applies.

Step 4 — credit. Rs 1.5392 crore − Rs 1.404 crore = Rs 13.52 lakh, carried forward for up to 15 years and set off in a year when normal tax exceeds AMT.

Notice what did the damage. The concessional 12.5% rate on long-term gains — the very thing that makes AIF investing attractive to an LLP — is what pulled the normal liability below the 18.5% floor and triggered AMT. The more of the return that arrives as long-term capital gain, the more likely the floor binds. Surcharge is ignored above to keep the arithmetic visible; in practice it is added to both columns before comparing.

Chapter 13 (Taxation), section 13.1.3 "Other relevant provisions of the ITA", under the heading "Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT)". The workbook treats the pair in a single passage, which is exactly why the exam can separate them.

The examinable points are: which assessee each applies to, the two AMT rates (18.5% and 15%), the base (adjusted total income, not book profits), the 15-year credit period, and the rule that Fund income enters the unitholder's AMT computation.

• AMT is not MAT. Alternate Minimum Tax applies to non-corporate assessees at 18.5% of adjusted total income. Minimum Alternate Tax applies to domestic companies at 14% of book profits. Same four words, different order, different taxpayer, different base, different rate. If you came here looking for the corporate one, go to Minimum Alternate Tax.
• The base is adjusted total income, not book profit. Book profit is the MAT base. Swapping the bases is the second half of the same mistake.
• The co-operative society rate is 15%, not 18.5%. It is the only carve-out on the rate.
• Pass-through is not immunity. Income exempt at the Category I or II AIF level under section 224 is still counted in determining a unitholder's MAT or AMT.
• It is a floor, not a surcharge. You pay the higher of normal tax and AMT, never both.
• Credit runs 15 years for MAT and AMT alike, and is set off only in a year when normal tax is the higher of the two.
• A company that opts into the concessional regime escapes MAT but loses its carried-forward MAT credit on exercising the option — the choice is not free.