AMT Treatment in Books of Account and Financial Statements
This query is : Resolved
23 September 2025
Kindly provide AMT treatment in case Partnership Firm in Books of Accounts and in Financial Statements
23 September 2025
In the case of a partnership firm, Alternate Minimum Tax (AMT) must be considered both in the books of accounts and in the financial statements if the firm is claiming certain profit-linked deductions and its adjusted total income exceeds ₹20 lakh.
AMT Treatment in Books of Accounts
AMT is accounted for as an additional tax liability in the year in which it arises.
If AMT paid is higher than regular tax, the excess paid (the AMT credit) can be recognized as an asset in the books (under “AMT Credit Entitlement”) since it can be carried forward for up to 15 assessment years for future set-off against regular tax.
Journal entries typically include:
Debit “Income Tax Expense” and credit “Bank” for the total tax paid (including AMT).
Debit “AMT Credit Entitlement” and credit “Income Tax Expense” for the portion that can be carried forward.
AMT Treatment in Books of Accounts
AMT is accounted for as an additional tax liability in the year in which it arises.
If AMT paid is higher than regular tax, the excess paid (the AMT credit) can be recognized as an asset in the books (under “AMT Credit Entitlement”) since it can be carried forward for up to 15 assessment years for future set-off against regular tax.
Journal entries typically include:
Debit “Income Tax Expense” and credit “Bank” for the total tax paid (including AMT).
Debit “AMT Credit Entitlement” and credit “Income Tax Expense” for the portion that can be carried forward.
23 September 2025
Treatment in Financial Statements ::
AMT and its related credit are reflected in the financial statements to present a true and fair view of the firm's financial position and performance.
Balance Sheet: The AMT credit is shown as a separate item under non-current assets (or current assets if it's expected to be used in the next year, though typically it's non-current due to the 15-year carry-forward period). This is similar to the accounting treatment for deferred tax assets.
Profit and Loss Statement: The tax expense charged to the P&L statement is the actual tax paid for the year, which is the higher of the normal tax or AMT. No separate line item is typically required for AMT; it's simply part of the total tax expense.
Notes to Accounts: Detailed disclosure is essential to explain the AMT treatment. The notes should include:
The firm's tax liability and how it was calculated (mentioning the applicability of AMT).
The calculation of the adjusted total income.
The amount of AMT paid and the amount of AMT credit recognized.
The amount of AMT credit carried forward from previous years and the amount utilized in the current year.
The balance of unutilized AMT credit at the end of the year.
AMT and its related credit are reflected in the financial statements to present a true and fair view of the firm's financial position and performance.
Balance Sheet: The AMT credit is shown as a separate item under non-current assets (or current assets if it's expected to be used in the next year, though typically it's non-current due to the 15-year carry-forward period). This is similar to the accounting treatment for deferred tax assets.
Profit and Loss Statement: The tax expense charged to the P&L statement is the actual tax paid for the year, which is the higher of the normal tax or AMT. No separate line item is typically required for AMT; it's simply part of the total tax expense.
Notes to Accounts: Detailed disclosure is essential to explain the AMT treatment. The notes should include:
The firm's tax liability and how it was calculated (mentioning the applicability of AMT).
The calculation of the adjusted total income.
The amount of AMT paid and the amount of AMT credit recognized.
The amount of AMT credit carried forward from previous years and the amount utilized in the current year.
The balance of unutilized AMT credit at the end of the year.
23 September 2025
As per our data AMT TAX is : 85,40,000/- and Tax as per normal provisions is 1,81,400/- and AMT Credit is Rs. 83,56,400 so Journal entry for the same is
Debit "Income Tax Expense" and Credit "Bank" for Amount of Rs.85,40,000/-
Debit "AMT Credit" and Credit "Income Tax Expense" for Amount of Rs.83,56,400/-
Then in the P&L the Income Tax Expenses will be shown at 1,81,400/- is this right sir. please confirm.
Debit "Income Tax Expense" and Credit "Bank" for Amount of Rs.85,40,000/-
Debit "AMT Credit" and Credit "Income Tax Expense" for Amount of Rs.83,56,400/-
Then in the P&L the Income Tax Expenses will be shown at 1,81,400/- is this right sir. please confirm.
23 September 2025
Yes, the P&L should show only ₹1,81,400 as Income Tax Expense after adjusting for AMT credit. The entries you described are generally in line with correct practice, provided AMT Credit is correctly shown as an asset and not netted off elsewhere. This is the standard and acceptable accounting approach for AMT and AMT credit.
Alternatively...
P&L Account Presentation
The Income Tax Expense in the P&L should reflect the tax liability as per normal provisions only (₹1,81,400 in your case).
The AMT credit recognized should appear as a separate asset (AMT Credit Entitlement) in the balance sheet, not reduced directly from the P&L.
Example Breakdown
If AMT Tax paid: ₹85,40,000
Tax as per normal: ₹1,81,400
AMT Credit: ₹83,56,400 (the difference)
Journal:
Debit "Income Tax Expense" ... ₹1,81,400
Debit "AMT Credit Entitlement" ... ₹83,56,400
Credit "Bank" ... ₹85,40,000
Alternatively...
P&L Account Presentation
The Income Tax Expense in the P&L should reflect the tax liability as per normal provisions only (₹1,81,400 in your case).
The AMT credit recognized should appear as a separate asset (AMT Credit Entitlement) in the balance sheet, not reduced directly from the P&L.
Example Breakdown
If AMT Tax paid: ₹85,40,000
Tax as per normal: ₹1,81,400
AMT Credit: ₹83,56,400 (the difference)
Journal:
Debit "Income Tax Expense" ... ₹1,81,400
Debit "AMT Credit Entitlement" ... ₹83,56,400
Credit "Bank" ... ₹85,40,000
23 September 2025
Good luck....
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