Alternative Minimum Tax (AMT), introduced for non-corporate taxpayers works on similar principles. However, credit for MAT paid in earlier years was allowed to be carried forward and set off in subsequent year wherein normal tax payable was higher than MAT. Then, tax at a rate lower than the normal rate of tax is levied on the adjusted income. Adjusted total income will be computed for MAT by adding and deducting certain specified items. This was initially introduced for companies in the name of ‘Minimum Alternate Tax (MAT)’ to collect minimum tax to be paid by companies who are claiming profit-linked deductions in such financial years (FYs) wherein normal tax payable is lower than MAT. Hence, ensuring not to completely disrupt the intention of introducing such incentives/deductions by taking it away indirectly and also to ensure levy of tax on such zero tax/marginal tax companies, concept of Minimum Tax was introduced. The Government also needs regular/consistent inflow of tax which is one of its major revenues to fund various expenses for the welfare of the country. Taxpayers who are eligible to claim such deductions/incentives would become zero tax companies or may end up paying marginal tax though they are capable of paying normal tax. The Government has introduced various profit linked deductions and incentives in order to encourage investment in various industries.
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