Section 206 Special provision for minimum alternate tax and alternate minimum tax.

Income-tax Act, 2025

Background & Scope

Statutory hooks: Clause/Section 206 deals with "Special provisions relating to minimum alternate tax and alternate minimum tax" as part of the Income-tax Act/Bill, 2025. The provision governs Minimum Alternate Tax (MAT) for companies (book-profit based) and Alternate Minimum Tax (AMT) for non-company persons, prescribing deemed total income and minimum rates, computation mechanics for book profit/adjusted total income, credit, carry-forward, exclusions, and compliance obligations (accountant's certificate). Definitions related to convergence to Indian Accounting Standards (IND AS), transitional adjustments, "Unit" (IFSC), "Tribunal", "Adjudicating Authority", and others are included. The text supplies procedural and substantive items to be added to or reduced from book profit or adjusted total income.

Statutory Provision Mode

Text & Scope

The provision makes the following principal rules: (a) where tax computed under general provisions is less than a prescribed percentage of book profit (company) or adjusted total income (other persons), that book profit/adjusted total income shall be deemed total income and tax shall be levied at the prescribed percentage (MAT/AMT). The Bill lists categories and percentages in a Table (companies 15%, IFSC companies 9%; persons 18.5% except co-operative societies 15% and IFSC persons 9%). It prescribes the formulaic computation for book profit (B = P + (I - R)), and itemises additions (I) and reductions (R). It also prescribes further adjustments for specified classes of assessees (members of AOPs, foreign companies, transfers to business trusts, royalty incomes, insolvency, sick companies, IND AS transition impacts). The provision includes carry-forward and set off of excess MAT/AMT paid, a fifteen-year limit, and rules for recomputation where book profit increases due to past-year inclusions (APAs and secondary adjustments).

Interpretation

The Bill's structure (table-driven rates; formula for book profit) indicates legislative intent to have a mechanically computable minimum tax regime that applies uniformly across taxpayer categories with specified carve-outs. The provisions for IND AS transition amounts and the detailed list of book profit adjustments suggest an intention to align tax MAT base with accounting profit while neutralising specific accounting entries that distort a tax base. The carry-forward mechanism for excess MAT/AMT reflects policy to avoid double taxation while preserving minimum tax floors.

Exceptions/Provisos

The Bill lists multiple exceptions: exclusions for certain companies (life-insurance business), taxpayers who opted under various procedural sections (200(5), 201(2), 203(5), 204(2)), taxpayers assessed u/s 202(1), small taxpayers with adjusted total income not exceeding INR 20 lakh, specified funds (Schedule VI), foreign companies meeting certain treaty/residence/PE criteria, and conversions to LLP where successor LLP is exempt from carry-forward rules. Specific carve-outs exist for transactions involving business trusts, demergers, insolvency cases, and sick industrial companies. Where missing details (e.g., prescribed form specifics, prescribed manner of recomputation) the text states procedural application "as prescribed" and definitions; further procedural particulars are Not stated in the document.

Illustrations

• Example 1: A domestic company shows book profit of INR 100 crore. Normal tax computed on total income under general provisions is INR 12 crore. Since 15% of book profit = INR 15 crore exceeds INR 12 crore, the deemed total income is book profit and tax at 15% is payable (i.e., INR 15 crore). This follows the Table in sub-section (1). (This example uses numbers consistent with Table; procedural filings and credits would follow sub-sections (13)-(16)).
• Example 2: A non-company person claims deductions under Chapter VIII-C (other than section 149). Their regular tax is lower than 18.5% of their adjusted total income; under the provision the adjusted total income (pre-addback) is increased by the Chapter VIII-C deduction and taxed at 18.5% as AMT. (Computation specifics and certificate requirements follow sub-section (11)).

Interplay

The provision cross-references multiple sections (e.g., sections 33(11), 46, 63, 129, 159, 168, 170, 202, 200, 201, 203, 204, and provisions under Companies Act and IBC). It interacts with IND AS transition rules (IAS 101 references), and with provisions determining residence and treaty relief (section 159). Where the text requires prescribed forms or methods ("as prescribed"), such rules/regulations are Not stated in the document.

Differences Between Section 206 of the Income-tax Act, 2025 and Clause 206 of the Income Tax Bill, 2025 - (Old Version)

Overall, the Act text (Document 1) is a finalized and more detailed statutory enactment, while the Bill text (Document 2) is an earlier draft with a different structural presentation and some substantive drafting differences. The principal differences and their practical impacts are summarised below.

• Presentation of rates and scope: The Bill (Document 2) presents taxpayers and rates in a consolidated table (Sl. Nos. 1-5) tying percentages directly to categories of assessees (companies, units in IFSC, co-operative societies, others). The Act (Document 1) separates company provisions (sub-section (1)(a)-(c)) and non-company AMT (sub-section (2)), specifying different rate sets (companies: 15%/9%; non-companies: 18.5%/15% for co-ops/9% for IFSC units).
  • Practical impact: the Act text clarifies company-specific and non-company regimes in separate subsections; functionally the rates and covered categories largely align but the Act organizes and cross-references differently, which can affect interpretive clarity and compliance procedures.
• Definition and computation of "book profit"/formulaic presentation: The Bill sets out an algebraic formula (B = P + (I-R)) and tabular increases/decreases (Document 2, sub-section (2)). The Act lists items to be added and reduced in narrative sub-clauses (Document 1, sub-section (1)(c)-(d)).
  • Practical impact: the Bill's formulaic approach is concise and may aid computation; the Act's narrative is more granular and contains additional specific items and cross-references (for example expanded sub-clauses and a separate clause (d)(ix) with a table for IND AS adjustments), which may be more prescriptive for practitioners preparing reconciliations to book profit.
• IND AS / transition mechanics: Both texts address convergence and IND AS adjustments. The Act (Document 1) contains a detailed clause (d)(ix) with a Table mapping amounts to be added and reduced and cross-references to clause (e) which explains terms; the Bill contains an analogous Table in sub-section (4) with accompanying Notes (Note 1-4 and sub-section (19) definitions).
  • Practical impact: the two texts are substantially similar on substance, but wording differences and placement of notes/definitions differ; practitioners will need to follow the enacted provision (Act) which may have slightly different mechanics for the "transition amount" and IND AS items.
• AMT for non-companies - deductions included/excluded: The Bill's Note 1 (to the main Table) lists deductions to be added back (including section 144) whereas the Act's sub-section (2)(b)(i) lists Chapter VIII-C deductions (other than section 149) and section 46 as reduced by depreciation. Document 1 does not mention section 144 in that clause; Document 2 explicitly includes section 144.
  • Practical impact: inclusion or exclusion of section 144 (carry-forward type provisions under specific heads) affects which taxpayers are caught by AMT and the quantum of adjusted total income - this is a material substantive change and alters compliance for non-company assessees who claim deductions u/s 144 (if any).
• Exclusions and options: The Bill's exclusion list (sub-section (18)) is broader: it lists options u/ss 200(5), 201(2), 203(5), 204(2) and additional categories. The Act (Document 1) excludes fewer options in its sub-section (1)(q) and sub-section (2)(d) - e.g., the Act excludes persons who exercised option u/s 200(5) or section 201(2) for the company regime, but the Bill lists more options in a general exclusion clause (18).
  • Practical impact: the Bill's draft would have excluded more taxpayers from the regime; the final Act narrows that exclusion (or places them differently), meaning more taxpayers may be subject to the AMT/MAT regime under the enacted text than under the earlier draft.
• Procedural filings / accountant certification: Both texts require an accountant's report in prescribed form. The Bill (Document 2, sub-section (11)) requires report generally and for companies along with return in response to notice; the Act (Document 1, sub-section (1)(s) & (2)(j)) is similar but places the company-specific filing differently.
  • Practical impact: substantively similar compliance requirement - differences are drafting/placement rather than new obligations; practitioners should follow the enacted Act's timing and form requirements.
• Carry-forward and credit mechanics: Both texts provide carry-forward of excess tax paid and specify 15-year limitation; both disallow interest on credits and ignore excess foreign tax credits. The placement and cross-reference numbering differ (Act uses clauses (m)-(p) for company MAT credit; Bill uses sub-sections (13)-(16)).
  • Practical impact: no substantive divergence on credit mechanics, but cross-referencing and procedural nuance is governed by the enacted text.
• Additional miscellaneous drafting differences: The Act contains specific additional sub-clauses addressing corporate insolvency, Tribunal nominations, demerger/LLP conversion exceptions, and explicit definitions in clause (t). The Bill contains analogous provisions under sub-section (19).
  • Practical impact: largely parallel, but small textual differences could affect interpretation on issues like scope of "Unit" and treatment of certain corporate events; practitioners must refer to the final enacted clause for authoritative interpretation.

Practical Implications

• Compliance and risk areas: companies must reconcile accounting profit to book profit per the detailed add-backs and deductions listed; reporting failures or misclassification of IND AS items, reserves, or revaluation movements can materially change MAT liability. Non-company taxpayers claiming Chapter VIII-C or section 46 benefits must assess AMT impact and prepare adjusted total income computations.
• Record-keeping/evidence: maintenance of detailed reconciling schedules between profit/loss prepared under Schedule III/other enactments and book profit, documentation for provisions, reserves and deferred tax entries, IND AS transition schedules (including transition amount computations) and accountant certificates in prescribed form are required. Specific prescribed form content and filing timelines are Not stated in the document.

Key Takeaways

• The Bill establishes a minimum tax regime (MAT for companies, AMT for others) by deeming book profit/adjusted total income as taxable where normal tax is lower than prescribed percentages.
• Rates differ by category: companies (15%/9% IFSC), others generally 18.5% (with co-op societies at 15% and IFSC persons at 9%).
• Book profit is computed by prescribed add-backs and reductions (formulaic in the Bill); IND AS transition items are specifically addressed.
• Excess tax paid under the minimum regime is creditable and carried forward up to fifteen years; no interest on such credit is allowed and certain foreign tax credit excesses are ignored.
• Specific carve-outs exist (treaty-based foreign companies, small taxpayers, specified funds, certain procedural options), but the final Act may differ in placement or extent of exclusions - practitioners must follow enacted text.
• Accountant's certificate in prescribed form is mandatory; procedural details and prescribed forms/methods are Not stated in the document.

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Full Text:

Section 206 Special provision for minimum alternate tax and alternate minimum tax.

Minimum tax regime deeming book profit/adjusted income taxable when regular tax is below prescribed minimum, imposing MAT/AMT. Section 206 creates a minimum tax regime whereby, if tax under general provisions is less than a prescribed percentage of book profit (for companies) or adjusted total income (for others), that book profit/adjusted total income is deemed total income and taxed at the prescribed rate. The provision prescribes formulaic add backs and reductions to compute book profit, addresses IND AS transition adjustments, specifies exclusions and carve outs, mandates an accountant's certificate in prescribed form, and provides carry forward and credit rules for excess MAT/AMT paid.