Ending all speculation on the fate of the Minimum Alternate Tax (MAT), Finance Minister Arun Jaitley on Tuesday said the government has accepted the Justice AP Shah panel’s recommendation to amend the Income Tax Act, exempting foreign institutional investors and foreign portfolio investors from MAT on transactions prior to April 1, 2015.
The move is expected to bring some cheer to Dalal Street.
“The government will move an amendment in the Finance Act to bring changes in section 115JB of the Income Tax Act. We would like to do this during the Winter Session of Parliament,” Jaitley told reporters here on Tuesday.
This amendment will be applicable on FIIs and FDIs but not on foreign companies. The minister said there would be no revenue loss to the government.
The Income Tax Department had already raised a demand amounting to over ₹600 crore from foreign companies. But the tax department will now issue a circular to field offices to hold off action on notices issued for levy of MAT on FIIs and the FPIs.
Further, those who have deposited the money will get a refund under the existing tax regulations. “Having certainty in the tax law is the responsibility of the Government. Since an ambiguity had arisen, it needed to be removed. There are only two ways to remove it. Either the courts resolve it or the legislature,” Jaitley said.
The Finance Act, 2015, prescribed exempting MAT on FIIs or FPIs from April 1. However, the controversy began when the tax authorities issued notices to about 100 FPIs with a demand to pay MAT on ‘untaxed gains’ made by them in Indian markets over past years.
The committee had submitted its final report on applicability of MAT on FIIs/FPIs for the period prior to April 1 to the government on August 25.
Rajesh H Gandhi, Partner with Deloitte Haskins & Sells LLP, commended the government for quickly stepping in to accept a taxpayer-friendly recommendation, especially considering the amount of potential tax demands being estimated.
“The acceptance of the Shah Committee report by the government will be viewed positively by the foreign investor community and can help boost sentiment and FII investment in the stock market,” said Gandhi. “Had the scope of the Shah Committee been widened to cover all foreign companies, that would have helped resolve the dispute for non-FIIs as well.”