Govt to amend I-T Act to exempt foreign firms covered by DTAAs

Foreign companies that do not have a permanent establishment in India will be exempt from paying MAT on profits from April 2001

In a big relief to foreign firms, government today said the Income Tax Act will be amended with retrospective effect to exempt from MAT the overseas companies that are covered under double taxation avoidance agreements.

Foreign companies that do not have a permanent establishment in India will be exempt from paying minimum alternate tax (MAT) on profits from April 2001.

The provisions of Section 115JB of Income Tax will not apply to foreign companies with effect from April 1, 2001, if they are resident of a country with which India has Double Taxation Avoidance Agreement (DTAA) and they do not have a permanent establishment (PE) in India, said an official statement.

In case the companies belong to countries with which India does not have a DTAA, the MAT exemption will apply if they are exempted from registration under Section 592 of the Companies Act 1956, or Section 380 of the Companies Act 2013.

"An appropriate amendment to the Income-tax Act in this regard will be carried out," said the Finance Ministry statement.

Earlier this month, the government had exempted foreign institutional and portfolio investors from payment of MAT on the capital gains made by them before April 1, 2015.

The Budget 2015-16 had already exempted FIIs/FPIs from paying the levy on gains made after April 1.

Government this month accepted the recommendations of the Justice A P Shah panel that there was no basis for levy of such MAT on capital gains made by FIIs and foreign portfolio investors for the prior period as well.

The government had decided to amend the Income Tax Act to clarify the issue with regard to levy of MAT on FIIs and in the meantime CBDT field officers will be asked not to pursue cases against FIIs.

Through the amendment the government will clarify that MAT provisions will not be applicable to FIIs/FPIs not having a place of business/permanent establishment in India, for the period prior to April 1, 2015.