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Foreign Investors Don't Need To Pay MAT, Says Jaitley

Foreign Investors Don't Need To Pay MAT, Says Jaitley
NEW DELHI, INDIA - AUGUST 13: Union Finance Minister Arun Jaitley after attending Parliament's Monsoon Session on August 13, 2015 in New Delhi, India. The session was washed out over the Congress demand for the resignations of three BJP leaders and witnessed the suspension of 25 MPs of the opposition Congress from the Lok Sabha for five days. (Photo by Sonu Mehta/Hindustan Times via Getty Images)
Hindustan Times via Getty Images
NEW DELHI, INDIA - AUGUST 13: Union Finance Minister Arun Jaitley after attending Parliament's Monsoon Session on August 13, 2015 in New Delhi, India. The session was washed out over the Congress demand for the resignations of three BJP leaders and witnessed the suspension of 25 MPs of the opposition Congress from the Lok Sabha for five days. (Photo by Sonu Mehta/Hindustan Times via Getty Images)

In a big relief to FIIs, the government today accepted recommendation of a high level panel that minimum alternate tax (MAT) should not be imposed on overseas portfolio investors retrospectively.

Finance Minister Arun Jaitley said the panel headed by Law Commission of India Chairman A P Shah submitted its final report on the issue of applicability of MAT on capital gain made by FIIs prior to April 1, 2015, on August 25.

The report has been accepted, he told reporters at late evening press conference here.

Jaitley said an amendment to the Income Tax Act to reflect the same will be made possibly in the winter session of Parliament in November/December.

While the issue had riled foreign portfolio investors, Jaitley had in his Budget for 2015-16 exempted FIIs from the levy from April 1.

“What applies post April 2015, that is no MAT on capital gain on FIIs, will also apply on pre-April 2015,” Jaitley said.

Foreign investors have invested about USD 20 billion in Indian stocks in the past year and USD 28 billion in bonds.

MAT has been levied on all companies except those in infrastructure and power sectors, since late 1980s.

Historically, foreign investors have not paid this tax because it was believed that only Indian companies were subject to it. In 2010, a tax tribunal ruled that MAT was not applicable to companies that don’t have a permanent establishment in India.

In 2010, Mauritius-based investment firm Castleton Investment approached the Authority for Advance Rulings (AAR) to get confirmation that it was not required to pay MAT on a transaction it wanted to execute.

However, AAR in 2012 ruled that even foreign companies are subject to MAT.

FIIs had argued that MAT is applicable only to domestic companies that had their base in India. By virtue of not being established in India, they should be “exempted”.

FIIs also contend that there was inconsistency in the application of MAT as ever since it was introduced, FIIs were always exempted from it and hence, arbitrary application should be avoided.

After FIIs started getting notices for MAT payments, the stock market had reacted adversely on concerns that foreign investors may pull out in a big way.

The markets have been very volatile for the last few weeks and the Sensex today tanked 587 points to close at over 1-year low due to intense selling. In August FIIs sold shares worth record Rs 17,000 crore.

Cheering the government’s announcement that minimum alternate tax will not be imposed on overseas portfolio investors retrospectively, experts on Tuesday said the move will help promote India as a favourable investment destination.

In a big relief to FIIs, the government today accepted recommendation of a high-level panel that MAT should not be imposed on the overseas investors retrospectively.

“The government has opted for amending the Income Tax Act rather than merely issuing a circular. With this clarification, the whole issue of levy of MAT will be resolved in favour of the tax payer.

“FIIs who had approached the High Court may now consider withdrawing their writ petitions filed earlier. This development will definitely cheer the investor community and will help promote India as a favourable investment destination,” Suresh Swamy, Partner, PwC India, said.

Finance Minister Arun Jaitley, in a media interaction, today said the panel headed by the Law Commission of India Chairman A P Shah submitted its final report on August 25 on the issue of applicability of MAT on capital gains made by FIIs prior to April 1, 2015.

“The acceptance of the Shah Committee report by the government will be viewed very positively by the foreign investor community, which can help boost sentiment and FII investment in the stock market,” Rajesh H Gandhi, Partner, Deloitte Haskins & Sells, said.

“The decision will also help further the government’s position that it discourages tax terrorism and welcomes foreign investment in India.”

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This article exists as part of the online archive for HuffPost India, which closed in 2020. Some features are no longer enabled. If you have questions or concerns about this article, please contact indiasupport@huffpost.com.