In order to save revenue on account of companies converting to LLP’s to take benefits of tax exemptions and to rationalize taxation of LLP’s with companies, this Union Budget has proposed to introduce a new Chapter XII-BA under the Income Tax Act 1961 which provides for levy of Alternate Minimum Tax @ 18.5% on the adjusted total income of Limited Liability Partnerships. The effective rate of AMT after taking in account education cess will be 19.05%.
As per the provisions of the chapter XII-BA, where the regular income tax payable by a LLP for a particular financial year is less than the corresponding alternate minimum tax computed at the rate of 18.5% on its adjusted total income; such alternate minimum tax shall be deemed to be the income tax liability of such LLP.
Adjusted total income shall be the total income as increased by the deductions claimed under any section included in chapter VI-A ( C ) (deductions in respect of certain income) and deductions claimed under section 10AA (deduction available to SEZ units).
AMT VS MAT
The concept to AMT is similar to the Minimum Alternate Tax (MAT), as applicable to the Companies but since there is no concept of book profits in case of LLP, the LLP’s will be liable to pay AMT on their adjusted total income (equivalent to adjusted taxable income). Similar to Company, LLP paying AMT can claim its credit for 10 assessment years. But as opposed to Company, LLP will not be liable to pay AMT on those income, which are exempt under provisions of Income Tax like long term capital gain under section 10 (38) and income from dividend under section 10 (34) etc
To check the comparison between the MAT and AMT, click here.
Infrastructure & IT Projects
LLP’s which are executing infrastructure projects or are carrying on IT related business and are otherwise eligible for incentives under section 80IA etc. will be badly hit by the applicability of AMT, as till now they were exempt from payment of MAT but they will have to shell out AMT from their pockets.
AMT: Hitback for LLP
Before the introduction of the Union Budget 2011-12, LLP was considered as very tax effective business vehicle as it was not subject to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT). The introduction of AMT has dented the attractiveness of LLP but not to large extent because LLP with its inherent flexible structure coupled with exemption from DDT still remains a viable form of business for investors in the long run.