Govt to amend IT Act over MAT on capital gains

Since late 1980s,the MAT has been levied on all companies except those in infrastructure & power sectors

In line with Justice A P Shah panel recommendations, the government on Monday proposed changes in the Income-Tax Act to resolve issues with regards to applicability of Minimum Alternate Tax (MAT) on capital gains made by FIIs prior to assessment year 2016-17.

The MAT has been levied on all companies except those in infrastructure and power sectors, since late 1980s.

While the issue had riled foreign portfolio investors, Finance Minister Arun Jaitley in his last year Budget had exempted FIIs from the levy from April 1, 2016.

Since, this amendment was prospective -- assessment year 2016-17 -- the issue for assessment year prior to 2016-17 remained to be addressed.

A Committee on Direct Tax matters headed by Justice A P Shah recommended for an amendment of section 115JB to clarify the applicability of MAT provisions to Foreign Institutional Investors or Foreign Portfolio Investors (FIIs or FPIs) in view of the fact that FIIs and FPIs normally do not have a place of business in India.

"In view of the recommendations of the committee and with a view to provide certainty in taxation of foreign companies, it is proposed to amend the Income-tax Act so as to provide that with effect from 01.04.2001, the provisions of section 115JB shall not be applicable to a foreign company...

"This amendment is proposed to be made effective retrospectively from the 1st day of April, 2001 and shall accordingly apply in relation to assessment year 2001-02 and subsequent years," said the Finance Bill 2016 tabled in Parliament by Jaitley on Monday.

After FIIs started getting notices for MAT payments, the stock market had reacted adversely last year on concerns that foreign investors may pull out in a big way.

The Shah panel in its report had said income of FIIs and FPIs were covered Section 115AD of Income Tax Act that was introduced in 1993 when they entered Indian market. The provision provided for tax at a concessional rate.

Applying MAT provision under Section 115JB would lead to FIIs, FPIs being taxed at a higher rate without getting the benefit of set of provisions and MAT credit, it said.