Demand notices on foreign investors not retrospective: govt

Govt sources say it is one thing to complain about retrospective taxation, another to seek retrospective exemption from what has to be legitimately paid to the exchequer

The government on Tuesday rejected suggestions that tax notices to foreign institutional investors (FIIs), which have created a controversy, amounted to retrospective taxation. Highly-placed sources in the government said the notices to foreign institutional and portfolio investors were a genuine demand and couldn't be compared with retrospective taxation. It is one thing to talk about retrospective taxation and complain about it. It is another seeking retrospective exemption from what has to be legitimately paid to the exchequer, the sources said.

They said the current demand of 20 per cent minimum alternate tax (MAT) on capital gains made by the foreign investors was what was genuinely due to the government. They were referring to reported apprehensions among foreign investors that the government was creating a new tax demand using retrospective tax legislation which they fear would deter foreign investment.

"The Income-Tax department has won cases in tribunals (Authority of Advanced Ruling or AAR) on levy of MAT on capital gains made by FIIs. If we do not demand tax now, then we could be hauled up authorities like CAG and CBI," the sources said.

Otherwise, the exchequer, they said, would have lost out on genuine tax revenue due.