What Is Section 115JD of the Income Tax Act?
Imagine you have two ways to calculate how much tax to pay—the regular way and a backup way (AMT for individuals, MAT for companies). Sometimes, the backup way might require you to pay more than the regular way. Section 115JD says that extra amount can be carried forward as a tax credit to reduce tax in future years. It was created to prevent unfair loss when backup taxes cause overpayment.
Who Can Claim Tax Credit Under Section 115JD?
- Individuals, HUFs, AOPs, BOIs, LLPs, and other non-corporates who pay AMT.
- Companies or LLPs paying MAT when their backup tax exceeds their regular tax.
Who can’t claim?
Taxpayers who choose newer tax regimes under Sections 115BAC (1A), 115BAD, or 115BAE are not eligible for this credit.
How Does Carry Forward and Set-Off Work?
- Excess Payment Turns into Credit:
If your backup tax (AMT/MAT) is higher than your regular tax, the extra becomes a credit. - No Interest Added:
This credit does not earn interest—it’s simply saved for future use. - Carry Forward Limit:
You can carry this credit forward up to 15 assessment years after the year in which it arose. - Using the Credit (Set-Off):
In a future year, if your regular tax turns out to be higher than your backup tax, you can apply the credit to reduce your tax bill. Any leftover credit continues to carry forward. - Adjustments on Revisions:
If any tax calculations (regular or backup) change due to legal orders, the available credit adjusts accordingly.
Conditions and Restrictions of Section 115JD
- Only the excess backup tax becomes credit.
- No interest is earned on the credit.
- Carry-forward is limited to 15 years.
- New tax regime taxpayers are excluded.
- You must actually pay the extra tax in the first place and file returns properly to claim and use the credit.
Practical Example of Tax Credit Carry Forward
- Year 1: Company pays ₹5 lakh as MAT but regular tax was only ₹2 lakh.
→ ₹3 lakh becomes credit. - Year 4: Regular tax is ₹6 lakh, MAT is ₹4 lakh.
→ Use ₹2 lakh of saved credit.
→ Remaining credit: ₹1 lakh.
The company continues this until the credit is fully used or the 15-year window closes.
Importance of Section 115JD for Tax Planning
- Fairness: It allows you to recover tax when backup rules cause overpayment in lean years.
- Cash Flow Stability: Helps businesses manage tax burdens over time.
- Avoids Double Payment: You don’t lose the extra tax you already paid—it becomes usable in future years.
- Essential to Track: Always know how much credit remains and use it when it benefits you.
Conclusion: Section 115JD is like saving up extra tax credit when backup tax rules (AMT/MAT) make you overpay. Instead of losing it, you can use that credit in future years, especially when regular tax becomes higher. You get up to 15 years to use this benefit, with no interest added. It’s a smart tool for fair, flexible, and planned tax payments—if you track it and file carefully.
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