Foreign Tax Credit under MAT/AMT Regime - A Continuing Dilemma

With globalisation deepening cross-border business activities, Indian taxpayers increasingly face the challenge of reconciling foreign tax payments with domestic tax liabilities. Among the most debated areas is the interaction between Foreign Tax Credit (FTC) and the Minimum Alternate Tax (MAT) or Alternate Minimum Tax (AMT) regime. Although both aim to address distinct policy concerns, their convergence often results in computational and interpretational complexity.

Understanding the Framework

Under sections 90/90A and 91 of the Income-tax Act, 1961, taxpayers can claim credit for foreign taxes paid to avoid double taxation of the same income. Rule 128 of the Income-tax Rules, 1962, provides the procedure for computing this credit.

On the other hand, MAT (section 115JB) and AMT (section 115JC) ensure that companies and certain non-corporate taxpayers pay a minimum amount of tax on their book profit or adjusted total income, even if their taxable income under normal provisions is lower due to various deductions or incentives. While both mechanisms coexist, the treatment of FTC in the context of MAT/AMT computation often becomes contentious.

Illustration: FTC Interaction with MAT Liability

Illustration I – M/s. X Ltd has earned business income of INR 10,00,000 from the USA, on which tax of INR 1,00,000 (say at 10%) has been paid in the USA. The said income is eligible for exemption under Section 10AA of the Income-tax Act, 1961. However, while computing tax liability under the provisions of MAT, the tax payable amounts to INR 1,50,000 (at 15%).

Illustration II – Considering that everything else remains same, let's assume that the above income is dividend income and tax as per normal provisions of Income-tax Act, 1961 comes to INR 3,00,000 (at 30%).

Under Rule 128, FTC can be claimed to the extent of the tax payable on that foreign income.

The table below synthesizes how these principles operate across the five regimes:

Note: For the illustrative purpose, we have considered only tax payable under MAT provisions. However, the treatment for credit allowed would be same for AMT provisions.

Interpretation

Where the FTC allowable against MAT/AMT exceeds that allowable under the normal provisions, the excess portion is to be ignored while computing MAT/AMT credit under sections 115JAA or 115JD. This restriction ensures that MAT/AMT credit carried forward does not inflate due to foreign tax adjustments.

The CBDT’s Notification No. 54/2016 clarified the manner of credit computation but left interpretational gaps, particularly in multi-jurisdictional cases arise between MAT/AMT and normal tax computations.

Conclusion

Although the broad principle of preventing double taxation remains intact, the FTC and MAT/AMT interaction continues to challenge tax practitioners. The lack of uniformity in both the computations under normal provision and MAT/AMT often results in inconsistency. Clearer computational guidance from the CBDT could go a long way in bringing consistency to practice.

Disclaimer

The information contained in this document is for information purposes only. In no way, this document should be treated as an advice. Please reach out to us or your consultants for undertaking detailed analysis.

This author will not be liable for any loss or damage caused by the reader’s reliance on information obtained through this report. The contents are provided for your reference only.

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