The Income-Tax Bill, 2025, has proposed significant changes to the alternative minimum tax (AMT) framework, potentially increasing the tax burden on partnership firms and limited liability partnerships (LLPs) with long-term capital gains (LTCG). The proposed amendments aim to remove preferential tax treatment for LTCG under the AMT regime and expand its applicability beyond firms claiming deductions under Chapter VI-A of the IT Act, 1961.
Key Changes in AMT Provisions
Currently, LLPs and partnership firms are subject to AMT at a rate of 18.5% if their tax liability falls below this threshold after claiming Chapter VI-A deductions. However, LTCG is taxed at a preferential rate of 12.5% in AMT calculations. The IT Bill, 2025, seeks to remove this preferential rate, aligning LTCG taxation with the general AMT rate of 18.5% and increasing the effective tax liability for many firms.
Moreover, the Bill has omitted a crucial provision from the IT Act, 1961, which stipulated that AMT applies only to firms claiming Chapter VI-A deductions. Tax experts believe this omission extends AMT applicability to all LLPs and partnership firms, even those not availing of tax deductions.
Industry Concerns and Expert Opinions
Industry bodies have raised concerns before the Select Committee of Parliament reviewing the Bill, highlighting the potential financial strain on LLPs and partnership firms.
A tax expert stated, "Typically, AMT provisions apply to entities availing of tax holidays or exemptions. The omission of Chapter VI-A references seems inadvertent and may lead to unintended consequences, such as higher taxation on firms earning capital gains."
Another expert noted that Section 206 of the new IT Bill consolidates AMT (for non-corporate businesses) and minimum alternate tax (MAT), applying AMT if an LLP's tax payable on adjusted income is below 18.5%. Unlike Section 115JEE of the IT Act, 1961, which restricted AMT applicability to LLPs claiming tax holidays or specific deductions, the revised provision appears to extend AMT to all LLPs.
Implications for LLPs and Partnership Firms
Under the current regime, LLPs and partnership firms benefit from tax deductions under Chapter VI-A for activities like infrastructure development (80-IA to 80-IE), job creation (80JJAA), and waste recycling (80JJA). However, the proposed changes could subject all LLPs to the higher AMT rate regardless of whether they claim these deductions.
Industry experts caution that this could impact investment structures relying on LLPs and partnership firms, as the removal of the LTCG concession could lead to higher tax outflows. The increased tax liability may prompt businesses to reevaluate their corporate structures and investment strategies.
An email sent to the Central Board of Direct Taxes (CBDT) seeking clarification on these amendments remained unanswered at the time of reporting.
Next Steps
The IT Bill, 2025, is currently under review by a Select Committee in the Lok Sabha. Tax professionals and industry stakeholders are closely monitoring developments, hoping for amendments to mitigate the unintended expansion of AMT applicability. As discussions progress, businesses must assess the impact of these changes on their tax planning and compliance strategies.
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