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CHANAKYA NATIUNAL LAW UNIVERSITY

PATNA - 8



A PR0}ECT W0RK 0N

Minimum Alternative Tax



Submitteu To: Bi. Ajay Kumai
Associate Piofessoi
Faculty Coipoiate Law





Submitteu By: vishal Chatuiveui

Roll No. : N

Couise : LL.N.

Yeai :
st
(III Semestei)



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ACkCNWLLDGMLN1


l owe a greaL many Lhanks Lo my frlends who helped and supporLed me durlng Lhe wrlLlng of
Lhls ro[ecL 1he work on Lhls pro[ecL has been an lnsplrlng ofLen exclLlng someLlmes
challenglng buL always an lnLeresLlng experlence

My deepesL Lhanks Lo my faculLy rof A[ay kumar Lhe Culde of Lhe pro[ecL lor guldlng and
correcLlng varlous documenLs of mlne wlLh aLLenLlon and care Pe has Laken paln Lo go Lhrough
Lhe pro[ecL and make necessary correcLlon as and when needed Pe has supporLed me wlLh hls
encouragemenL and many frulLful dlscusslons
l would also Lhank my lnsLlLuLlon and my oLher faculLy members wlLhouL whom Lhls
pro[ecL would have been a dlsLanL reallLy
vlshal ChaLurvedl





















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CCN1LN1S


CnA1Lk Ak1ICULAkS

AGL No
1 IN1kCDUC1ICN
11Statement of rob|em
12nypotheses
13A|ms and Cb[ect|ves
14Scope of the ro[ect
1SMethodo|ogy
16Scheme of Chapters

49
2 What |s M|n|mum a|ternat|ve tax?

1012
3 Computat|on of 8ook rof|t

1319
4 rocedure for Computat|on of MA1 under sect|on 11SI8

2023
S M|n|mum A|ternate 1ax (MA1) and D|v|dend D|str|but|on
1ax (DD1) |n case of Spec|a| Lconom|c 2ones

242S
6 Case |aw

2628
7 Conc|us|on

2931

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A pro[ect work on M|n|mum A|ternat|ve 1ax

Chapter 1
Introduct|on

1he substant|ve features of MA1 have to be understood |n con[unct|on w|th the
account|ng standard of deferred tax
1he n|ndu

1he alLernaLlve mlnlmum Lax (or MA1) ls an exLra Lax some people have Lo pay on Lop of Lhe
regular lncome Lax 1he orlglnal ldea behlnd Lhls Lax was Lo prevenL people wlLh very hlgh
lncomes from uslng speclal Lax beneflLs Lo pay llLLle or no Lax 1he MA1 has lncreased lLs reach
however and now applles Lo some people who donL have very hlgh lncome or who donL clalm
loLs of speclal Lax beneflLs
1he name comes from Lhe way Lhe Lax works 1he MA1 provldes an alLernaLlve seL of rules for
calculaLlng your lncome Lax ln Lheory Lhese rules deLermlne mlnlmum amounL of Lax LhaL
someone wlLh your lncome should be requlred Lo pay lf youre already paylng aL leasL LhaL
much because of Lhe regular lncome Lax you donL have Lo pay MA1 8uL lf your regular Lax
falls below Lhls mlnlmum you have Lo make up Lhe dlfference by paylng alLernaLlve mlnlmum
Lax
1he levy of a mlnlmum Lax on companles was flrsL lnLroduced Lhrough secLlon 80VVA by the
I|nance Act 1983 wef Assessment ear 19848S Lhe meLhod adopLed by Lhls secLlon was Lo
place a celllng on Lhe aggregaLe quanLum of lncenLlves avallable under varlous provlslons of Lhe
AcL
Powever Lhe unabsorbed |ncent|ves were a||owed to be carr|ed forward and set off aga|nst
taxab|e |ncome |n future years 1he concept of tax on book prof|ts was |ntroduced or|g|na||y
under sect |on 11SI by the I|nance Act 1987 w|th effect from Assessment year 198889 and lL

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was wlLhdrawn wlLh effecL from AssessmenL year 199091 Pere Lhe Lax was levled on 30 of
8ook roflLs
SubsequenLly Lhe concepL was relnLroduced wlLh a few changes lmposlng Mlnlmum AlLernaLe
1ax (MA1) under secL lon 113!A wlLh effecL from AssessmenL year 199798 and had effecL up Lo
AssessmenL year 200001 Pere lf Lhe Laxable lncome of a company compuLed under Lhls AcL
ln respecL of any prevlous year relevanL Lo Lhe assessmenL year commenclng on or afLer 1497
buL before 142001 ls less Lhan 30 of lLs book proflLs Lhe LoLal lncome of such company
chargeable Lo Lax for Lhe relevanL prevlous year shall be deemed Lo an amounL equal Lo 30 of
such book proflLs
SecLlon 113!8 was lnLroduced ln llnance AcL 2000 wef 142001 whereby a company shall
be llable Lo pay hlgher of Lax compuLed under lncome 1ax AcL provlslons and Lax compuLed
under Sec113!8
roposa| |n 8udget 20072008
1he exLenslon of Lhe mlnlmum alLernaLe Lax (MA1) reglme Lo lncome sLreams whlch ln Lhe
normal course are exempL appears Lo be a conLlnulng Lrend 1hls year Lhe budgeL has proposed
Lo exLend Lhe MA1 provlslons Lo companles engaged ln lnLer alla Lhe l1 and 8C secLors LhaL
are avalllng Lax deducLlon under secLlon 10A and 108 of Lhe lncome1ax AcL 1961 (AcL)
1he 8udgeL also does noL exLend Lhe sunseL clause under secLlon 108 of Lhe lncome1ax AcL
whlch allows LCus Lo avall 100 Lax exempLlon on exporL earnlngs afLer March 31 2009 1he
commerce mlnlsLry has been lobbylng Lo exempL LCus from lncomeLax for anoLher Len years
afLer March 2009
1he Lax pald under MA1 can be carrled forward as a credlL and offseL agalnsL Lhe normal
corporaLe Lax llablllLy for a perlod of seven flnanclal years ln llghL of Lhe sunseL provlslon
conLalned ln secLlon 10A of Lhe AcL whlch prescrlbes a daLe of March 31 2009 on whlch Lhe
Lax hollday scheme explres Lhe lnLroducLlon of MA1 for Lhe l1 and 8C secLor ls llkely Lo
represenL aL mosL a cash flow lssue 1he MA1 lmpacL may also be neuLrallzed on accounL of
forelgn Lax credlLs LhaL are offseL agalnsL MA1 payable

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11 Statement of prob|em
1he orlglnal role of Lhe Mlnlmum AlLernaLlve 1ax lnLroduced ln 1969 was Lo prevenL a small
group of hlghlncome Laxpayers from comblnlng so many deducLlons and exempLlons LhaL Lhey
owed llLLle or no lncome Lax 1he Mlnlmum alLernaLlve 1ax ldenLlfles Laxpayers who have Laken
excesslve advanLage of legal Lax breaks and forces Lhem Lo recalculaLe Lhelr lncome Lax 1hey
musL add back ln some of Lhe prevlously unLaxed lncome Lake a speclal MA1 exempLlon and
pay Lax on Lhls new deflnlLlon of Laxable lncome aL dlfferenL raLes ln Lheory Lhe MA1 serves as
a Lax backsLop Laxlng lncome LhaL would have escaped LaxaLlon
So Lhe problem ls LhaL Lhe MA1 has really dolng hls work or lL's [usL become a secLlon of lncome
1ax AcL So ln Lhls pro[ecL we Lry Lo dlscuss all Lhe advanLage and dlsadvanLages of MA1 1he
pro[ecL has Lrled Lo deflne LhaL Mlnlmum alLernaLlve 1ax has really served hls lmporLance or
noL
12 nypothes|s

JheLher Mlnlmum AlLernaLlve 1ax has really served hls purpose
JheLher Mlnlmum AlLernaLlve 1ax ls dlfferenL from normal Lax
JheLher Mlnlmum AlLernaLlve 1ax compuLaLlon ls much easler Lhan normal Lax on
company and company really paylng Lax under MA1

13 A|ms and Cb[ect|ves of the research
1he ma|n a|m of Lhe pro[ecL work ls LhaL companles havlng large proflLs and declarlng
subsLanLlal dlvldends Lo shareholders buL who were noL conLrlbuLlng Lo Lhe governmenL by way
of corporaLe Lax by Laklng advanLage of Lhe varlous lncenLlves and exempLlons provlded ln Lhe
lncomeLax AcL pay a flxed percenLage of book proflL as mlnlmum alLernaLe Lax
1he key ob[ect|ve ls Lo presenL SecLlon 113!8 of lncome 1ax AcL 1961 lnserLed by Lhe llnance
AcL 2000 has casL a responslblllLy on Lhe charLered accounLanL Lo cerLlfy LhaL Lhe book proflL
has been compuLed ln accordance wlLh Lhe provlslons of lncome 1ax AcL Pe has also Lo cerLlfy

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Lhe lncome1ax payable by Lhe company 1he pro[ecL work has descrlbed all Lhe compuLaLlon
and book proflL whlch helps Lo undersLand Lhe Mlnlmum AlLernaLlve 1ax And how Lo company
should be llable Lo pay Lax and conLrlbuLe Lo lndlan economy

14 Scope of the ro[ect and ||m|tat|on
1he presenL work ls an endeavor Lo creaLe awareness ln Lhe fleld of Mlnlmum alLernaLlve 1ax
8aslcally a company ls llable Lo pay Lax on Lhe lncome compuLed ln accordance wlLh Lhe
provlslons of Lhe lncome Lax AcL buL Lhe proflL and loss accounL of Lhe company ls prepared as
per provlslons of Lhe Companles AcL 1here were large number of companles who had book
proflLs as per Lhelr proflL and loss accounL buL were noL paylng any Lax because lncome
compuLed as per provlslons of Lhe lncome Lax acL was elLher nll or negaLlve or lnslgnlflcanL ln
such case alLhough Lhe companles were showlng book proflLs and declarlng dlvldends Lo Lhe
shareholders Lhey were noL paylng any lncome Lax 1hese companles are popularly known as
Zero 1ax companles 1hls pro[ecL descrlbe only LhaL condlLlon ln whlch company noL showlng
any proflL and Lry Lo safe hlmself Lo glve Lax 1he pro[ecL only descrlbe Lhe Mlnlmum alLernaLlve
procedure and Lax percenLage also compuLaLlon of Mlnlmum alLernaLlve Lax So Lhls pro[ecL
baslcally Lalklng abouL only LhaL company whlch noL showlng proflL

1S Methodo|ogy
1he meLhodology applled ln Lhls ro[ecL ls very much docLrlnal 1he meLhods chosen for
conducLlng Lhe research work from Lhe flrsL sLep of sLudy up Lo Lhe lasL lncludlng Lhe sLudy of
Lhe llLeraLure of slmllar works belng done before were chosen as Lhe proper sources for daLa
collecLlon LhaL reLrleved from books arLlcles law [ournals eLc
Analysls of collecLed daLa reLrlevlng necessary and useful lnformaLlon ouL of Lhe daLa collecLed
afLer analyzlng Lhem preparlng Lhe flnal approprlaLe suggesLlons and recommendaLlons are
deflned and belng lndlcaLed ln Lhe meLhodology of Lhe research work ln deLall
lor Lhe presenL research Lhe meLhod chosen for geLLlng Lhe whole ldea of Lhe work and lLs
scope was referrlng Lhe mosL recenL and avallable books publlshed lnslde and ouLslde of lndla

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and aL Lhe same Llme sLudy of useful and relaLed lnformaLlon LhaL have been used and applled
for Lhe flrsL hand daLa requlred ln Lhe area of Mlnlmum AlLernaLlve 1ax 1he LesLlng and
verlflcaLlon of hypoLhesls ls based on analysls of collecLed daLa and collecLed facLs from varlous
cases and oLher sources
Method of Wr|t|ng
1he meLhod of wrlLlng followed ln Lhe course of Lhls research paper ls prlmarlly analyLlcal and
descrlpLlve
Sources of Data
1he followlng secondary sources of daLa have been used ln Lhe pro[ecL
1 ArLlcles
2 8ooks
3 JebslLes
16 Scheme of Chapters

Chapter 1 Introduct|on under Lhls chapLer Lhe baslc undersLandlng of Lhe concepLs ls belng
provlded ln order Lo make furLher ln depLh readlng on Lhe sub[ecL ln Lhls chapLer lL has been
Lrled Lo make clear whaL Mlnlmum alLernaLlve 1ax ls
Chapter 2 What |s M|n|mum a|ternat|ve tax under Lhls chapLer focus on Mlnlmum
alLernaLlve 1ax Jhlch Lypes of company ls llable Lo pay Mlnlmum alLernaLlve Lax

Chapter 3 Computat|on of 8ook rof|t under Lhls chapLer Lhe researcher has Lrled Lo
compuLaLlon of 8ook proflL 8ecause Lhe company who showlng LhaL he ls noL geLLlng proflL
LhaL companles also llable Lo pay Lax on Lhe basls of 8ook proflL
Chapter 4 rocedure for Computat|on of MA1 under sect|on 11SI8 under Lhls chapLer lL has
been Lrled Lo descrlbe Lhe procedure for compuLaLlon of Mlnlmum alLernaLlve Lax

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Chapter S M|n|mum A|ternate 1ax (MA1) and D|v|dend D|str|but|on 1ax (DD1) |n case of
Spec|a| Lconom|c 2ones under Lhls chapLer we dlscussed Mlnlmum alLernaLlve Lax ln case of
speclal economlc zones
Chapter 6 Case |aw under Lhls Lhe researcher Lrles Lo make undersLandable Mlnlmum
alLernaLlve Lax wlLh Lhe help of case law
Chapter 7 Conc|us|on under Lhls ChapLer concluslon of Lhe dlscusslon ls belng presenLed and
wlLh Lhe help of analysls of collecLed lnformaLlon Lhe researcher Lrles Lo explaln role of
Mlnlmum alLernaLlve Lax ln Lax sysLem
















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Chapter 2
What |s M|n|mum a|ternat|ve tax?
A company ls llable Lo pay Lax on Lhe lncome compuLed ln accordance wlLh Lhe provlslons of
Lhe lncome Lax AcL buL Lhe proflL and loss accounL of Lhe company ls prepared as per
provlslons of Lhe Companles AcL 1here were large number of companles who had book proflLs
as per Lhelr proflL and loss accounL buL were noL paylng any Lax because lncome compuLed as
per provlslons of Lhe lncome Lax acL was elLher nll or negaLlve or lnslgnlflcanL ln such case
alLhough the compan|es were show|ng book prof|ts and dec|ar|ng d|v|dends to the
shareho|ders they were not pay|ng any |ncome tax 1hese compan|es are popu|ar|y known as
2ero 1ax compan|es ln order Lo brlng such companles under Lhe lncome Lax acL neL secLlon
113!A was lnLroduced wef assessmenL year 199798
1

Accordlng Lo Lhls secLlon lf Lhe Laxable lncome of a company compuLed under Lhls AcL ln
respecL of prevlous year 199697 and onwards ls less Lhan 30 of lLs book proflLs Lhe LoLal
lncome of such company ls chargeable Lo Lax for Lhe relevanL prevlous year shall be deemed Lo
an amounL equal Lo 30 of such book proflLs A new Lax credlL scheme ls lnLroduced by whlch
MA1 pald can be carrled forward for seLoff agalnsL regular Lax payable durlng Lhe subsequenL
flve year perlod sub[ecL Lo cerLaln condlLlons as under
O Jhen a company pays Lax under MA1 Lhe Lax credlL earned by lL shall be an amounL
whlch ls Lhe dlfference beLween Lhe amounL payable under MA1 and Lhe regular Lax
8egular Lax ln Lhls case means Lhe Lax payable on Lhe basls of normal compuLaLlon of
LoLal lncome of Lhe company
O MA1 credlL wlll be allowed carry forward faclllLy for a perlod of flve assessmenL years
lmmedlaLely succeedlng Lhe assessmenL year ln whlch MA1 ls pald unabsorbed MA1
credlL wlll be allowed Lo be accumulaLed sub[ecL Lo Lhe flve year carry forward llmlL
O ln Lhe assessmenL year when regular Lax becomes payable Lhe dlfference beLween Lhe
regular Lax and Lhe Lax compuLed under MA1 for LhaL year wlll be seL off agalnsL Lhe
MA1 credlL avallable

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O 1he credlL allowed wlll noL bear any lnLeresL
2

8ackground
1he levy of a mlnlmum Lax on companles was flrsL lnLroduced Lhrough secL lon 80vvA by Lhe
llnance AcL 1983 wef A? 198483 1he meLhod adopLed by Lhls secL lon was Lo place a
celllng on Lhe aggregaLe quanLum of lncenLlves avallable under varlous provlslons of Lhe AcL
Powever Lhe unabsorbed lncenLlves were allowed Lo be carrled forward and seL off agalnsL
Laxable lncome ln fuLure years
1he concepL of Lax on book proflLs was lnLroduced orlglnally under secL lon 113! by Lhe llnance
AcL 1987 wlLh effecL from AssessmenL ?ear 198889 and lL was wlLhdrawn wlLh effecL from
AssessmenL ?ear 199091 Pere Lhe Lax was levled on 30 of 8ook roflLs SubsequenLly Lhe
concepL was relnLroduced wlLh a few changes lmposlng Mlnlmum AlLernaLe 1ax (MA1) under
secLlon 113!A wlLh effecL from AssessmenL ?ear 199798 and had effecL up Lo AssessmenL ?ear
200001 Pere lf Lhe Laxable lncome of a company compuLed under Lhls AcL ln respecL of any
prevlous year relevanL Lo Lhe assessmenL year commenclng on or afLer 1497 buL before
142001 ls less Lhan 30 of lLs book proflLs Lhe LoLal lncome of such company chargeable Lo
Lax for Lhe relevanL prevlous year shall be deemed Lo an amounL equal Lo 30 of such book
proflLs SecLlon 113!8 was lnLroduced ln llnance AcL 2000 wef 142001 whereby a company
shall be llable Lo pay hlgher of Lax compuLed under lncome 1ax AcL provlslons and Lax
compuLed under Sec113!8
3

Why MA1?
normally a Company ls llable Lo pay Lax on Lhe lncome compuLed ln accordance wlLh Lhe
provlslon of Lhe lncome 1ax AcL lor Lhe same purpose Lhe proflL and loss accounL of Lhe
Company ls prepared as per Lhe provlslons of parts II and III of Schedu|e VI of the Compan|es
Act 19S6 prov|ded that

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1he AccounLlng sLandards were adopLed for preparlng such accounLs lncludlng proflL
and loss accounL
1he meLhods and raLes adopLed for calculaLlng Lhe depreclaLlon eLc were lald before
Lhe company aL lLs annual general meeLlng (ln accordance wlLh Lhe provlslons of secLlon
210 of Lhe Companles AcL 1936)
1here were large number of Companles who had book proflLs as per Lhelr roflL and Loss
accounL buL were noL paylng any 1ax because lncome compuLed as per Lhe varlous provlslons
of Lhe lncome 1ax AcL was elLher nll or negaLlve or lnslgnlflcanL ln such cases alLhough Lhe
companles showed book proflLs and were declarlng dlvldends Lo Lhe share holders Lhey were
noL paylng any lncome 1ax
4

ln order Lo brlng such Companles under Lhe lncome 1ax neL SecLlon 113!A was lnLroduced wlLh
effecL from Lhe assessmenL year 199798 Accordlng Lo Lhls secLlon lf Lhe Laxable lncome of Lhe
company Lhus compuLed ls less Lhan 30 of lLs book proflLs Lhen Lhe LoLal lncome of such
assesses chargeable Lo Lax shall be deemed Lo an amounL equal Lo 30 of such book proflLs lL
was however Lhe llnance AcL 2000 LhaL lnserLed secLlon 113!8 of Lhe lncome 1ax AcL 1961
wlLh LffecL from Lhe assessmenL year 200102 provldlng for Lhe levy of Mlnlmum AlLernaLe 1ax
(MA1) on Companles
3

1he provlslons of Lhls secLlon would noL apply Lo Lhe followlng Lypes of lncome
6

lncome from Lhe buslness of developlng malnLalnlng and operaLlng cerLaln
lnfrasLrucLure faclllLles
lncome from unlLs ln speclfled zones or speclfled backward dlsLrlcLs
lncome of cerLaln lossmaklng companles
LxporL proflLs


4
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Chapter 3
Computat|on of 8ook rof|t
8ook proflL means Lhe neL proflL as shown ln Lhe proflL and loss accounL for Lhe relevanL
prevlous year as |ncreased by
7

1 Lhe amounL of lncomeLax pald or payable
2 Lhe amounLs carrled Lo any reserves oLher Lhan a reserve speclfled under secLlon
33AC or
3 Lhe amounL seL aslde Lo provlslons made for meeLlng llablllLles oLher Lhan ascerLalned
llablllLles or
4 Lhe amounL by way of provlslon for losses of subsldlary companles or
3 Lhe amounL of dlvldends pald or proposed or
6 Lhe amounL of expendlLure relaLable Lo any lncome Lo whlch secLlon 10oLher Lhan
secLlon 10(23C) or secLlon 10A or secLlon 108 or secLlon 11 or secLlon 12 apply or
7 Lhe amounL of depreclaLlon (lnserLed by llnance AcL2006 wef 01042007)
If any amounL referred Lo ln clauses (1) Lo (7) ls deblLed Lo Lhe proflL and loss accounL and
as reduced by
1 1he amounL wlLhdrawn from any reserve or provlslon
2 Lhe amounL of lncome Lo whlch any of Lhe provlslons of secLlon 10 oLher Lhan secLlon
10(23C) or secLlon 10A or secLlon 108 or secLlon 11 or secLlon 12 apply lf any such
amounL ls credlLed Lo Lhe proflL and loss accounL or
3 Lhe amounL of depreclaLlon deblLed Lo Lhe proflL and loss accounL (excludlng Lhe
depreclaLlon on accounL of revaluaLlon of asseLs) (lnserLed by llnance AcL2006 wef
01042007) or

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4 Lhe amounL wlLhdrawn from revaluaLlon reserve and credlLed Lo Lhe proflL and loss
accounL Lo Lhe exLenL lL does noL exceed Lhe amounL of depreclaLlon on accounL of
revaluaLlon of asseLs referred Lo ln clause (ll o) ( lnserLed by llnance AcL2006 wef 01
042007 ) or
3 1he amounL of loss broughL forward or unabsorbed depreclaLlon whlchever ls less as
per books of accounL
Lxp|anat|on Ior the purposes of th|s c|ause
a) Lhe loss shall noL lnclude depreclaLlon
b) Lhe provlslons of Lhls clause shall noL apply lf Lhe amounL of loss broughL forward or
unabsorbed depreclaLlon ls nll or
6 1he amounL of proflLs ellglble for deducLlon under SecLlon 80PPC 8CPPL 80PPl
7 Pe amounL of proflLs of slck lndusLrlal company
MA1 kate
SNo Sect|on Assessment ear kate of MA1



1 113!A 199798 Lo 20002001 30 of 8ook roflL



2 113!8 20012002 Lo 20062007 73 of 8ook roflL



3 113!8 20072008 and 20082009 10 of Lhe book proflL



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Compute an a|ternate tax
Jhlle calculaLlng Mlnlmum AlLernaLe 1ax Lhe followlng sLeps are followed
CompuLlng lncome 1ax
8

a CompuLe Lhe LoLal lncome of Lhe company (lgnorlng Lhe provlslon of secLlon
113!8)
b CompuLe Lhe lncome 1ax payable on LoLal lncome aL normal raLes on Lhe proflL
calculaLed above
llrsL you flgure Lhe amounL of Lax you would owe under a dlfferenL seL of rules JhaLs
dlfferenL abouL Lhese rules? 8roadly speaklng Lhree Lhlngs
A varlous Lax beneflLs LhaL are avallable under Lhe regular Lax are reduced or ellmlnaLed
8 ?ou geL a speclal deducLlon called Lhe AM1 exempLlon whlch ls deslgned Lo prevenL Lhe
AM1 from applylng Lo Laxpayers wlLh modesL lncome 1hls deducLlon phases ouL when
your lncome reaches hlgher levels a facL LhaL causes slgnlflcanL problems under Lhe
alLernaLlve mlnlmum Lax
C ?ou calculaLe Lhe Lax uslng AM1 raLes whlch sLarL aL 26 and move Lo 28 aL hlgher
lncome levels 8y comparlson Lhe regular Lax raLes sLarL aL 10 and Lhen move Lhrough
a serles of sLeps Lo a hlgh of 33
1he resulL of Lhls calculaLlon ls Lhe amounL of lncome Lax you would owe under Lhls
alLernaLlve sysLem of Lax
ASSLSSMLN1 LAk 201213
Companles lor Lhe assessmenL years 201112 and 201213 Lhe followlng raLes of lncomeLax
are appllcable
9


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ooy kote locetox
(et ceot) see
ols oto016
ln Lhe case of a domesLlc company 30
ln Lhe case of a forelgn company
royalLy recelved from CovernmenL or an lndlan concern ln
pursuance of an agreemenL made by lL wlLh Lhe lndlan concern
afLer March 31 1961 buL before Aprll 1 1976 or fees for
renderlng Lechnlcal servlces ln pursuance of an agreemenL made
by lL afLer lebruary 29 1964 buL before Aprll 1 1976 and where
such agreemenL has ln elLher case been approved by Lhe CenLral
CovernmenL
30
oLher lncome 40

Surcharge Surcharge ls appllcable aL Lhe raLes glven below
10

lf neL lncome does noL exceed 8s
1 crore
lf lncome exceeds 8s
1 crore
AssessmenL
year
AssessmenL
year
201112 201213
uomesLlc
company
nll 73* 3*
lorelgn
company
nll 23* 2*


10
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lL ls 2 or 23 or 3 or 73 of lncomeLax Marglnal rellef ls avallable whlch ls glven
below
Marg|na| re||ef ln Lhe case of a company havlng a neL lncome of exceedlng 8s 1 crore Lhe neL
amounL payable as lncomeLax and surcharge shall noL exceed Lhe LoLal amounL payable as
lncomeLax on LoLal lncome of 8s 1 crore by more Lhan Lhe amounL of lncome LhaL exceeds 8s
1 crore
Lducat|on cess lL ls 2 per cenL of lncomeLax and surcharge
Secondary and h|gher educat|on cess lL ls 1 per cenL of lncomeLax and surcharge

MINIMUM AL1LkNA1L 1Ak 1he followlng raLe of mlnlmum alLernaLe Lax shall be appllcable
AssessmenL year 201112
11


lf book proflL does noL exceed 8s
1 crore
lf book proflL exceeds 8s 1 crore
l1 S
C
LC SPL
C
1oLal l1 SC LC SPLC 1oLal
uomesLlc
company
18 036 018 1834 18 133 0387 01933 199303
lorelgn
company
18 036 018 1834 18 043 0369 01843 190033

Note lf book proflL of a company for Lhe assessmenL year 201112 exceeds 8s 1 crore Lhe
mlnlmum alLernaLe Lax cannoL exceed Lhe followlng (8s 18 lakh + book proflL 8s 1 crore) + LC
+ SPLC


11
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Assessment year 201213

A book proflL does noL exceed 8s
1 crore
A book proflL exceeds 8s 1 crore
l1 S
C
LC SPLC 1oLal l1 SC LC SPLC 1oLal
uomesLlc
company
183 037 0183 19033 183 0923 03883 019423 2000773
lorelgn
company
183 037 0183 19033 183 037 03774 01887 194361

Nte lf book proflL of a company for Lhe assessmenL year 201213 exceeds 8s 1 crore Lhe
mlnlmum alLernaLe Lax cannoL exceed Lhe followlng (8s 183 lakh + book proflL 8s 1 crore) +
LC + SPLC
Compare w|th the regu|ar tax
1hen you compare Lhls Lax wlLh your regular Lax lf Lhe regular Lax ls hlgher you donL owe any
AM1 8uL lf Lhe regular Lax ls lower Lhe dlfference beLween Lhe Lwo Laxes ls Lhe amounL of AM1
you have Lo pay
Lxamp|e 1 ?our regular lncome Lax ls $47000 Jhen you calculaLe your Lax uslng Lhe AM1
rules you come up wlLh $39000 1haLs lower Lhan Lhe regular Lax so you donL pay any AM1
Lxamp|e 2 ?our regular lncome Lax ls $47000 Jhen you calculaLe your Lax uslng Lhe AM1
rules you come up wlLh $38000 ?ou have Lo pay $11000 of AM1 on Lop of Lhe $47000 of
regular lncome Lax

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lf youre paylng aLLenLlon youve probably noLlced LhaL Lhe LoLal amounL of Lax you pay ln
Lxample 2 ls equal Lo Lhe Lax calculaLed under Lhe AM1 $38000 8uL lLs lmporLanL Lo noLe LhaL
you acLually pay $47000 of regular Lax plus $11000 of AM1 as well see below
12
















12
hLLp//wwwfalrmarkcom/amL/amL101hLm 13 CcLober 2011

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Chapter 4
rocedure for Computat|on of MA1 under sect|on 11SI8
1he provlslons of secLlon 113!8 provlde for worklng ouL Lhe lncomeLax payable as MA1 on a
deemlng basls 1he MA1 Lax llablllLy under secLlon 113!8 can be worked ouL by undergolng Lhe
followlng sLeps
1 CompuLe Lhe LoLal lncome of Lhe company (lgnorlng Lhe provlslons of u/s113!8)
2 CompuLe Lhe lncomeLax payable on LoLal lncome ls worked ouL under (l) above
3 Jork ouL Lhe 8ook roflL under Lhe provlslons of secLlon 113!8
4 CalculaLe 10 per cenL of book proflL (as per provlslons of secLlon 113!8)
3 MA1 Lax llablllLy as worked ouL under (4) above would be Lhe Lax payable lf lL ls more
Lhan Lhe amounL of Lax worked ouL (2) above
A numer|ca| |||ustrat|on A8C LLd had lLs compuLed LoLal lncome aL 8s100 lakhs and lLs book
proflL as compuLed under secLlon 113!8 ls 8s600 lakhs ln such an evenL Lhe followlng would
be Lhe calculaLlon of MA1 Lax llablllLy under secLlon 113!8 for assessmenL year 20072008 as
dlscussed above
l) 1oLal lncome 8s100 lakhs
ll)
3366 of LoLal lncome belng Lax payable
(30+10 surcharge+2 L Cess)
8s3366 lakhs
lll) 8ook roflL 8s600 lakhs
lv)
1122 of Lhe 8ook roflL
(10 + 10 surcharge + 2 L Cess)
8s6732 lakhs
v)
lncome Lax payable under MA1 (slnce hlgher Lhan
Lax on LoLal lncome aL (ll) above)
8s6732 lakhs

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Pence Lhe Lax payable by A8C LLd for assessmenL year 200708 would be 8s6732 lakhs slnce
Lhe Lax payable on book proflL under secLlon 113!8 ls hlgher Lhan Lhe Lax payable on compuLed
1oLal lncome

MA1 Cred|t
As per secLlon 113!AA MA1 credlL can be carrled forward for seLoff agalnsL regular Lax payable
durlng Lhe subsequenL years sub[ecL Lo cerLaln condlLlons as under
1 lf MA1 ls pald under secLlon 113!A lLs credlL can be carrled forward and uLlllzed f|ve
assessment years |mmed|ate|y succeedlng Lhe assessmenL year ln whlch Lax credlL
becomes allowable under subsecLlon (1) of secLlon 113!AA
2 lf MA1 ls pald u/s 113!8 lLs credlL can be carrled forward and uLlllzed seven assessment
year lmmedlaLely succeedlng Lhe assessmenL year ln whlch Lax credlL becomes
allowable under subsecLlon (1A) of secLlon 113!AA (lnserLed by llnance AcL2006
wef 01042007)
3 1he credlL allowed wlll noL bear any lnLeresL








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A numer|ca| |||ustrat|on
A Norma|
tax
||ab|||ty
1ax
||ab|||ty
u]s
11SI8
1ax
payab|e by
the
assessee
n|gher of
(2) and (3)
Add|t|ona|
tax ||ab|||ty
(4) (2)
Cred|t
u]s
11SIAA
ut|||zed
Cred|t
ava||ab|e
for carry
forward
(1) (2) (J) (4) (5) (6) (7)
200607 100 300 300 200 200
200708 120 90 120 nlL 30 # 170
200809 130 110 130 nlL 40 130
200910 180 200 200 20 130
201011 200 130 200 nlL 30 100
201112 223 173 223 nlL 30 30*
Lven Lhough credlL of 200 ls avallable only 30 can be uLlllzed so LhaL Lhe Lax payable by
Lhe assessee does noL go below Lhe amounL compuLed u/s 113!8
CuL of Lhe credlL of 30 30 are belonglng Lo AssessmenL year 200607 and 20 belong Lo
AssessmenL ?ear 200910 ln vlew of provlslons of subsecLlon (3) of secLlon 113!AA Lhe
credlL of 30 wlll noL be allowable afLer AssessmenL ?ear 201112 and would accordlngly

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lapse Powever credlL of 20 perLalnlng Lo A? 200910 would be allowed Lo be carrled
forward Llll A? 201413
Spec|a| rov|s|on for Certa|n Compan|es
Speclal provlslons were seL ln Lhe sLaLuLe Lo provlde compleLe Lax hollday for newly esLabllshed
underLaklngs ln l1Z LP1 S1 (SecLlon 10A) and for newly esLabllshed 100 exporLorlenLed
underLaklngs (SecLlon 108) 1hls compleLe Lax hollday ls avallable for flrsL 10 assessmenL years
unlLs covered under SecLlon 10A and SecLlon 10 8 was lmmune from Lhe levy of MA1 Also
lncome accrued or arlslng afLer 31sL March 2003 from any buslness / servlces seL up ln SLZ was
exempLed from levy of MA1
ayment of Advance tax
All companles are llable for paymenL of advance Lax havlng regard Lo Lhe provlslons conLalned
ln new secLlon 113!8 ConsequenLly Lhe provlslons of secLlons 2348 and 234C for lnLeresL on
defaulLs ln paymenL of advance Lax and defermenL of advance Lax would also be appllcable
where facLs of Lhe case warranL
rocedure for Income 1ax keturn
Lvery company Lo whlch Lhls secLlon applles shall furnlsh a reporL ln Lhe prescrlbed form (lorm
298) from an accounLanL as deflned ln Lhe LxplanaLlon below subsecLlon (2) of SecLlon 288
cerLlfylng LhaL Lhe book proflL has been compuLed ln accordance wlLh Lhe provlslons of Lhls
secLlon along wlLh Lhe reLurn of lncome flled under subsecLlon (1) of SecLlon 139 or along wlLh
Lhe reLurn of lncome furnlshed ln response Lo a noLlce under clause (l) of subsecLlon (1) of
secLlon 142
13



13
hLLp//wwwLaxlndlaonllnecom/8C2/lnslde2php3?fllenamebnews_deLallphp3newsld3638 03 CcLober
2011


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Chapter S
M|n|mum A|ternate 1ax (MA1) and D|v|dend D|str|but|on 1ax (DD1) |n
case of Spec|a| Lconom|c 2ones

under Lhe exlsLlng provlslons of secLlon 10AA of Lhe lncomeLax AcL a deducLlon of hundred per
cenL ls allowed ln respecL of proflLs and galns derlved by a unlL locaLed ln a Speclal Lconomlc
Zone (SLZ) from Lhe exporL of arLlcles or Lhlngs or servlces for Lhe flrsL flve consecuLlve
assessmenL years of flfLy per cenL for furLher flve assessmenL years and LhereafLer of flfLy per
cenL of Lhe ploughed back exporL proflL for Lhe nexL flve years
14

lurLher under secLlon 80lA8 of Lhe lncomeLax AcL a deducLlon of hundred per cenL ls allowed
ln respecL of proflLs and galns derlved by an underLaklng from Lhe buslness of developmenL of
an SLZ noLlfled on or afLer 1sL Aprll 2003 from Lhe LoLal lncome for any Len consecuLlve
assessmenL years ouL of flfLeen years beglnnlng from Lhe year ln whlch Lhe SLZ ls noLlfled by Lhe
CenLral CovernmenL under Lhe exlsLlng provlslons of secLlon 113!8(6) an exempLlon ls allowed
from paymenL of mlnlmum alLernaLe Lax (MA1) on book proflL ln respecL of Lhe lncome accrued
or arlslng on or afLer 1sL Aprll 2003 from any buslness carrled on or servlces rendered by an
enLrepreneur or a ueveloper ln a unlL or Speclal Lconomlc Zone (SLZ) as Lhe case may be
lurLher under Lhe exlsLlng provlslons of secLlon 113C(6) an exempLlon ls allowed from
paymenL of Lax on dlsLrlbuLed proflLs ulvldend ulsLrlbuLlon 1ax (uu1) ln respecL of Lhe LoLal
lncome of an underLaklng or enLerprlse engaged ln developlng or developlng and operaLlng or
developlng operaLlng and malnLalnlng a Speclal Lconomlc Zone for any assessmenL year on
any amounL declared dlsLrlbuLed or pald by such ueveloper or enLerprlse by way of dlvldends
(wheLher lnLerlm or oLherwlse) on or afLer 1sL Aprll 2003 ouL of lLs currenL lncome Such
dlsLrlbuLed lncome ls also exempL from Lax under secLlon 10(34) of Lhe AcL
13

1he above provlslons were lnserLed ln Lhe lncomeLax AcL by Lhe Speclal Lconomlc Zones AcL
2003 (SLZ AcL) wlLh effecL from 10Lh lebruary 2006 CurrenLly Lhere ls no sunseL daLe
provlded for exempLlon from MA1 ln Lhe case of a developer of an SLZ or a unlL locaLed ln an

14
hLLp//wwwslmpleLaxlndlaneL/2011/03/mlnlmumalLernaLeLaxmaLanddlvldendhLml, 03 november 2011
13
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SLZ Slmllarly Lhere ls no sunseL daLe for exempLlon from uu1 ln Lhe case of a developer of an
SLZ lL ls proposed Lo sunseL Lhe avallablllLy of exempLlon from mlnlmum alLernaLe Lax ln Lhe
case of SLZ uevelopers and unlLs ln SLZs ln Lhe lncomeLax AcL as well as Lhe SLZ AcL 1hls
amendmenL Lo secLlon 113!8 of Lhe lncomeLax AcL wlll Lake effecL from 1sL Aprll 2012 and wlll
accordlngly apply ln relaLlon Lo Lhe assessmenL year 201213 and subsequenL years lL ls
furLher proposed Lo dlsconLlnue Lhe avallablllLy of exempLlon from dlvldend dlsLrlbuLlon Lax ln
Lhe case of SLZ uevelopers under Lhe lncomeLax AcL as well as Lhe SLZ AcL for dlvldends
declared dlsLrlbuLed or pald on or afLer 1sL !une 2011
16

1hls amendmenL Lo secLlon 113C of Lhe lncomeLax AcL wlll Lake effecL from 1sL !une 2011 lL
ls also proposed Lo make consequenLlal amendmenLs by omlLLlng LxplanaLlon Lo secLlon 10(34)
of Lhe lncomeLax AcL 1hls amendmenL Lo secLlon 10 wlll Lake effecL from 1sL !une 2011
ConsequenLlal amendmenLs have also been proposed ln Lhe Second Schedule of Lhe SLZ AcL by
omlLLlng clause (C) of paragraph (a) wef 01062011 paragraph (h) wef 01042012 and
paragraph (l) wef 01062011 of Lhe Second Schedule














16
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Chapter 6
Case |aw

l kane| C|| vs ICI1 (I1A1 Ahmadabad 1h|rd Member)
17

5pecio/ 8ench judqement moy prevoi/ over nonjurisdictiono/ niqh court judqement 5nowcem
lndio l1l l1k 170 {8om) moy be per incuriom
18

1he 1rlbunal had Lo conslder wheLher an assessee llable Lo pay Mlnlmum AlLernaLe 1ax u/s
113!A was also llable Lo pay lnLeresL u/s 2348 234C for shorLfall ln paymenL of advance Lax
1he !udlclal Member followed Lhe [udgemenL of Lhe 8ombay Plgh CourL ln Snowcem lndla LLd
313 l18 170 and held LhaL lnLeresL u/s 2348 and 234C could noL be levled when book proflLs
was compuLed u/s 113!A 1he AccounLanL Member dlssenLed and followed Lhe earller
[udgemenL of Lhe Speclal 8ench ln Ashlma SynLex LLd 117 l1u 1 where a conLrary vlew was
Laken 1he 1hlrd Member had Lo conslder wheLher Lhe [udgmenL of a non[urlsdlcLlonal Plgh
CourL would prevall over LhaL of Lhe Speclal 8ench of Lhe 1rlbunal PLLu by Lhe 1hlrd Member
1 1he vlew LhaL Lhe Plgh CourL ls above Lhe 1rlbunal ln Lhe [udlclal hlerarchy and LhaL Lhe
[udgemenL of a non[urlsdlcLlonal Plgh CourL would prevall over LhaL of Lhe Speclal
8ench ls sub[ecL Lo Lwo excepLlons 1he flrsL excepLlon ls where Lhere ls only one
[udgmenL of a Plgh CourL on Lhe lssue and no conLrary vlew has been expressed by any
oLher Plgh CourL 8uL when Lhere are several declslons of non[urlsdlcLlonal Plgh CourLs
expresslng conLrary vlews Lhe 1rlbunal ls free Lo choose LhaL vlew whlch appeals Lo lL
and ln cerLaln clrcumsLances Lhe vlew whlch ls favorable Lo Lhe Laxpayer may be
adopLed
2 1he second excepLlon ls where Lhe [udgmenL of Lhe non[urlsdlcLlonal Plgh CourL
Lhough Lhe only [udgmenL on Lhe polnL ls 'per lncurlam' le ls rendered wlLhouL havlng
been lnformed abouL cerLaln sLaLuLory provlslons or blndlng precedenLs LhaL are dlrecLly
relevanL A 'per lncurlam' [udgemenL need noL be glven effecL Lo by a lower courL

17
(932 kl8 1249 uLs)
18
hLLp//lLaLonllneorg/archlves/lndexphp/kanelollvs[clLlLaLahmedabadLhlrdmemberspeclalbenchprevalls
overnon[urlsdlcLlonalhlghcourL[udgemenLsnowcemlndla313lLr170bomlsperlncurlam 10 CcL 2011

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3 ln Snowcem lndla LLd Lhe 8ombay Plgh CourL declded ln favour of Lhe assessee
followlng Lhe precedenLs rendered ln Lhe conLexL of s 113! Powever lLs aLLenLlon was
noL drawn Lo subsec (4) of 113 !A whlch accordlng Lo Lhe deparLmenL makes all Lhe
dlfference beLween s 113! and s 113!A Accordlngly Lhe [udgmenL cannoL be relled
upon by Lhe assessee as belng enLlrely ln lLs favour on all Lhe aspecLs of secLlon 113!A
and Lherefore lL cannoL be sald LhaL lL should be followed ln preference Lo Lhe order of
Lhe Speclal 8ench ln Ashlma SynLex
4 ConsequenLly Lhe [udgemenL of Lhe Speclal 8ench had Lo be followed and lL had Lo be
held LhaL Lhe assessee was llable Lo pay lnLeresL u/s 2348 234C even when lncome
was compuLed u/s 113!A
II V|svas romoters vs I1A1 (Madras n|gh Court)
19


Nonreference by I1A1 of c|ted [udgements |s not an apparent m|stake
1he assessee clalmed deducLlon u/s 80l8 (10) whlch was re[ecLed by Lhe AC buL allowed by Lhe
Cl1 (A) Cn appeal by Lhe deparLmenL Lhe 1rlbunal ruled agalnsL Lhe assessee and held LhaL lL
was noL ellglble for deducLlon 1he assessee flled a MA u/s 234 (2) polnLlng ouL LhaL |t had c|ted
a [udgement of Lhe kolkoLa 8ench of Lhe 1rlbunal (whlch had been consldered by Lhe Cl1 (A))
and a [udgemenL of Lhe kolkoLa Plgh CourL wh|ch had not been cons|dered by the 1r|buna|
when decldlng Lhe appeal and Lhe same was a 'mlsLake apparenL from Lhe record' 1he MA was
re[ecLed on Lhe ground LhaL Lhe lssue was dlscussed and Lhere was no mlsLake 1o challenge Lhe
MA order a wrlL was flled by Lhe assessee urglng LhaL Lhe 1rlbunal oughL Lo have recalled Lhe
appeal order and reheard Lhe appeal PLLu dlsmlsslng Lhe eLlLlon
l 1he wrlL peLlLlon agalnsL Lhe MA order was malnLalnable because Lhe assessee has no
alLernaLlve remedy An appea| u]s 260A can be f||ed on|y aga|nst an order passed u]s
2S4 (1) and not aga|nst one passed u]s 2S4 (2)

19
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ll Cn merlLs even Lhough |t was true that |n the or|g|na| order the 1r|buna| had not
referred to the order of coordlnaLe 8ench of Lhe kolkaLa 1rlbunal and Lhe subsequenL
declslon of Lhe CalcuLLa Plgh CourL Lhe subsLance of Lhe same has been dlscussed ln
deLall 1he assessee had a rlghL of appeal and Lherefore Lhe appllcaLlon for recLlflcaLlon
u/s 234(2) was mlsconcelved
lll A dec|s|on of the n|gh Court of d|fferent [ur|sd|ct|on |s not b|nd|ng on the 1r|buna|
Noncons|derat|on of the same |s not a "m|stake" u]s 2S4 (2)
Note
ln nonda S|e| 293 l18 466 (SC) lL was held LhaL omlsslon by Lhe 1rlbunal Lo refer Lo Lhe
[udgemenL of a coordlnaLe 8ench was an apparenL mlsLake" u/s 234 (2)
ln Godavar| Dev| Saraf 113 l18 389 (8om) and n|ghway Construct|on 217 l18 234 240
(Cau) lL was held LhaL Lhe 1rlbunal had Lo follow Lhe law lald down by a non
[urlsdlcLlonal Plgh CourL where Lhere ls no [udgemenL of a [urlsdlcLlonal CourL
ln aras Lam|nates 186 l18 722 (SC) lL was held LhaL a 8ench of Lhe 1rlbunal could noL
llghLly dlsregard Lhe declslon of a coordlnaLe 8ench on an ldenLlcal quesLlon
ln Sh|vsagar Veg Lstate 220 C18 363 (8om) and Naresh ahu[a (8om) lL was held LhaL
nonconslderaLlon of clLed [udgmenLs showed nonappllcaLlon of mlnd










Page oI

Chapter 7
Conc|us|on
1he Lax laws provlde Lax beneflLs for cerLaln klnds of lncome and allow speclal deducLlons and
credlLs for cerLaln klnds of expenses 1he mlnlmum alLernaLlve Lax (MA1) aLLempLs Lo ensure
LhaL anyone who beneflLs from Lhese Lax advanLages pays aL leasL a mlnlmum amounL of Lax
1he MA1 ls a separaLely flgured Lax LhaL ellmlnaLes many deducLlons and credlLs Lhus
lncreaslng Lax llablllLy for an lndlvldual who would oLherwlse pay less Lax 1he LenLaLlve
mlnlmum Lax raLes on ordlnary lncome are percenLages seL by law lor caplLal galns and cerLaln
dlvldends Lhe raLes ln effecL for Lhe regular Lax are used ?ou may have Lo pay Lhe MA1 lf your
Laxable lncome for regular Lax purposes plus any ad[usLmenLs and preference lLems LhaL apply
Lo you are more Lhan Lhe MA1 exempLlon amounL
1he AlLernaLlve Mlnlmum 1ax ofLen ls descrlbed as a separaLe" Lax sysLem or a parallel" Lax
sysLem separaLe and dlsLlncL from Lhe regular" Lax sysLem LhaL applles Lo everyone Jhlle Lhe
MA1 creaLes a unlque fraLernlLy wlLh a membershlp of over four mllllon ouL of a LoLal Laxpayer
populaLlon of over 130 mllllon Lhere really ls only one Lax sysLem ln Lhe uS Cur Lax sysLem ls
compllcaLed buL Lhe underlylng concepL ls baslc we pay Laxes on a calculaLed number LhaL ls
known as Laxable lncome" we arrlve aL Laxable lncome by addlng dlfferenL sources of lncome
and Lhen subLracLlng a cerLaln number of deducLlons noL all lncome ls sub[ecL Lo Lax llLLle of
whaL we spend each year may be Laken as a Lax deducLlon we apply Lhe approprlaLe Lax raLe Lo
our Laxable lncome Lhe resulL ls our lndlvldual share of Lhe naLlonal Lax burden
1hls same concepL applles for Lhe MA1 as lL does for Lhe 8egular 1ax buL Lhe lndlvldual
componenLs of Lhe compuLaLlon are dlfferenL more lncome ls Laxed under Lhe MA1 Lhan lL ls
under Lhe 8egular 1ax fewer deducLlons are allowed under Lhe MA1 Lhan under Lhe 8egular
1ax 1he key Lo remember ls LhaL under Lhese alLernaLlve compuLaLlons Lhe Lax LhaL wlll be
due ls Lhe greaLer of Lhe AM1 or Lhe 8egular 1ax Jhlle Lhls may noL seem falr and ln many
cases lL lsn'L LhaL's [usL Lhe way lL ls Cne has no cholce
1he bulk of Lhe MA1 hlL" comes from Lhe deducLlon slde deducLlons LhaL an lndlvldual ls
allowed Lo Lake for Lhe 8egular 1ax buL ls noL allowed Lo Lake for Lhe MA1 Some deducLlons
are noL allowed aL all for Lhe MA1 whlle oLhers are allowed buL Lo a lesser degree 1he

Page oI

8egular 1ax deducLlons LhaL are noL allowed aL all for Lhe MA1 are Lhe sLandard deducLlon Lhe
deducLlon for personal exempLlons Lhe lLemlzed deducLlon for sLaLe and local Laxes lnLeresL on
cerLaln second morLgages or home equlLy llnes of credlL mlscellaneous lLemlzed deducLlons
1he 8egular 1ax deducLlons LhaL are allowed Lo a lesser exLenL for Lhe MA1 are Lhe lLemlzed
deducLlon for medlcal and denLal expenses many buslness expenses such as depreclaLlon
depleLlon and research expenses among oLhers on Lhe lncome slde Lhere are fewer
dlfferences 1he key ones are LaxexempL bond lnLeresL LhaL ls from a prlvaLe acLlvlLy bond"
lncome from Lhe exerclse of an lncenLlve sLock opLlon" (lSC") sLaLe lncome Lax refunds
lL ls lmporLanL Lo noLe LhaL Lax plannlng opporLunlLles exlsL for all of Lhese MA1 lLems Lach
one ls dlfferenL of course buL Lhe plannlng generally falls lnLo Lhe followlng grouplngs paylng
cerLaln expenses LhaL are MA1 lLems ln one year versus anoLher chooslng a dlfferenL accounLlng
meLhod alLerlng an lnvesLmenL sLraLegy alLerlng a flnanclng sLraLegy CerLaln MA1 lLems cannoL
be avolded ln Lhelr enLlreLy (properLy Laxes for example aL leasL whlle one owns a home) buL
because lncome and deducLlons and Lax raLes do noL remaln sLaLlc from year Lo year Lhe MA1
almosL always can be reduced ln parL by movlng Lhe MA1 lLem lnLo a dlfferenL year CLher MA1
lLems however may be ellmlnaLed ln parL or ln full lf Lhey are covered by one of Lhe oLher Lax
plannlng sLraLegles llsLed above 1hus Lhe essence of MA1 plannlng ls
1) llrsL deLermlnlng whlch lLems are causlng Lhe Laxpayer Lo fall lnLo Lhe AM1 and Lhen
2) 1aklng Lhe approprlaLe acLlon Lo lessen lf noL ellmlnaLe Lhe effecL of each lLem
1he concepL of Mlnlmum AlLernaLe 1ax (MA1) was lnLroduced ln Lhe dlrecL Lax sysLem Lo ensure
LhaL companles havlng large proflLs and declarlng subsLanLlal dlvldends Lo shareholders buL
who were noL conLrlbuLlng Lo Lhe CovernmenL by way of corporaLe Lax by Laklng advanLage of
Lhe varlous lncenLlves and exempLlons provlded ln Lhe lncomeLax AcL pay a flxed percenLage
of book proflL as mlnlmum alLernaLe Lax SecLlon 113!8 lnserLed by Lhe llnance AcL 2000 has
casL a responslblllLy on Lhe charLered accounLanL Lo cerLlfy LhaL Lhe book proflL has been
compuLed ln accordance wlLh Lhe provlslons of Lhe lncomeLax AcL 1he audlLor has Lo furLher
cerLlfy Lhe lncomeLax payable by Lhe company
1he alLernaLlve mlnlmum Lax began as a way Lo ensure LhaL Laxpayers pay aL leasL a mlnlmum
amounL of Lax 1he MA1 has a compleLely dlfferenL seL of calculaLlons Lhan Lhe regular Lax lor

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Lhe regular Lax you add up your LoLal lncome subLracL ouL varlous deducLlons and personal
exempLlons and Lhen calculaLe Lhe Lax AgalnsL Lhe regular Lax you can clalm varlous credlLs Lo
reduce your Lax even furLher 1he MA1 however does noL allow Lhe sLandard deducLlon
personal exempLlons or cerLaln lLemlzed deducLlons Also some lncome whlch ls noL sub[ecL Lo
Lhe regular Lax ls added for MA1 purposes ?our Lax under MA1 rules may be hlgher Lhan your
Lax under regular Lax rules


















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8I8LICGkAn

kLIkLNCLS

1 vk Slnghanla ulrecL 1ax (Law and racLlce) 1axmann ubllcaLlons () LLd 29
Lh
LdlLlon
201011
2 vk Slnghanla SLudenL's Culde Lo lncome 1ax 1axmann ubllcaLlons () LLd 27
Lh
LdlLlon
200910
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