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Finance Minister Arun Jaitley is likely to clear the air about applicability of Minimum Alternate Tax (MAT) on Foreign Portfolio Investors (FPIs) in the Budget to be unveiled on February 28.
The issue of levying MAT on FPIs cropped up with the Income Tax department issuing notices to certain FPIs asking them why they should not be subjected to MAT.
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According to sources, the I-T department's move could have an adverse bearing on portfolio investments unless some clarification is issued by the Finance Minister.
MAT is levied on all profit-making companies at the rate of 20%. It was introduced by the government in 1980s to bring into net the companies which were not paying any taxes.
"Income Tax department has sent letters to a number of FPIs asking them to explain why they should not be liable to MAT," a source told PTI.
According to experts, there is no clarity about applicability of MAT on FPIs and it is felt that imposition of the levy could have a bearing on foreign portfolio fundings in the Indian stock market.
"The Budget should clarify the government's position on applicability of MAT to FPIs, else it may result into another long drawn dispute and litigation," said Vikas Vasal, Partner, Tax, KPMG (India).
Vasal further said that there is a strong view that the foreign companies are not liable to maintain books of accounts in India and hence MAT is not applicable to them, therefore, FPIs are not liable to pay MAT.
FPIs encompass all foreign institutional investors (FIIs), their sub-accounts and Qualified Foreign Investors (QFI) under a new regime that came into force on June 1, 2014.
Overseas investors have pumped in more than Rs 45,000 crore (USD 7.35 billion) so far in 2015.