To find a solution to the ongoing controversies over the applicability of minimum alternate tax (MAT) on foreign institutional investors (FIIs), the government has referred the issue to a committee headed by Justice (retd) AP Shah.

Stating this in the Rajya Sabha on Thursday, Finance Minister Arun Jaitley said, “The Committee may look into the issue on a case-by-case basis in a retrospective manner.”

Jaitley was replying after a debate on the Finance Bill, which will now be returned to the Lok Sabha, thus completing the Budget exercise for 2015-16. Now, it will go for Presidential assent. Once the Bill gets the President’s assent, changes in tax laws become effective.

This is second relief for the foreign fund houses. Last week Jaitley had offered tax relief to foreign investors, exempting income from securities transactions, royalties and technical service from MAT.

The Finance Bill has proposed exempting MAT on FII or FPI (Foreign Portfolio Investors) from April 1. However, the controversy began when tax authorities issued notices to about 100 FPIs with a demand to pay MAT for ‘untaxed gains’ made by them in the Indian markets over the past years.

The Income-Tax Department has imposed 20 per cent MAT on capital gains made by FPIs.

Later, the government informed Parliament that the I-T Department has issued tax notices in 68 cases of overseas funds comprising total tax demand of ₹602.83 crore.

The FIIs have taken legal recourse for relief. But interpretation of MAT by the Tax Department coupled with weak global and domestic indicators pushed heavy selling in the market. This has resulted in the benchmark index, the BSE Sensex, falling by over 800 points in two trading sessions – Wednesday and Thursday.

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