CBDT tells field officers to finish MAT assessments for FIIs

To end uncertainty over applicability of Minimum Alternate Tax (MAT) on foreign institutional investors (FIIs) and foreign companies, the Central Board of Direct Taxes (CBDT) on Wednesday asked its field officers to complete the pending assessments in light of the directions issued regarding inapplicability of the tax liability on such entities.

“The field authorities are hereby advised that pending assessments involving applicability of MAT on foreign companies (including FIIs and FPIs) should be completed in accordance with the decision of the government,” CBDT said in an instruction to field formations.

The government had earlier decided that Section 115JB of Income Tax with regard to levy of MAT will not apply to foreign companies, FIIs and foreign portfolio investors (FPIs) and a requisite amendment would be made in the Finance Bill 2016.

It was decided that MAT will not apply to companies prior to April 1, 2015. The government had already in last Budget clarified that MAT would not be levied on foreign companies, FIIs and FPIs from April 1, 2015.

KPMG (India) Head of Tax Girish Vanvari said the instruction would put the tax controversy on the MAT issue at rest and bring in the much needed certainty to the foreign investors.

"This is also a very positive signal to the investor community as the government is promptly and transparently trying to put the controversial tax issues at rest," he said.

The tax department, earlier this year, faced a huge controversy over applicability of MAT on capital gains made by foreign portfolio investors/foreign institutional investors in period prior to April 1. The issues spooked markets with FIIs threatening to pull out.

The government managed to salvage the situation through a committee under Law Commission chairman A P Shah which recommended non applicability of MAT for previous years.

The government had earlier said that the I-T Act will be amended with retrospective effect to exempt overseas companies, which do not have a permanent establishment in India, from paying MAT.

Foreign companies, irrespective of whether they belong to a country with which India has a Double Taxation Avoidance Agreement (DTAA), were exempted from MAT on profits from April 2001 if they do not have a place of business in India.