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The slew of minimum alternate tax (MAT) notices being sent by the Income Tax Department to foreign institutional investors (FIIs) might continue till March 2022 if the rulebook is followed and if authorities decide to pursue MAT cases for FY13-FY15.
In his Budget 2015-16 speech, Finance Minister Arun Jaitley rationalised MAT provisions for FIIs and said profits corresponding to their income from capital gains on transactions in securities liable to tax at a lower rate wouldn’t be subject to MAT.
However, even after the announcement, FIIs received MAT notices for up to 2011-12. While pending notices for FY13 to FY15 have not yet been issued, government officials don’t rule it out. “MAT exemption, as part of the Finance Bill 2015, is effective April 1. It does not have any retrospective clause. So, for any case till March 31, 2015, wherein MAT is applicable, we have a legal basis to send notices,” said a senior finance ministry official.
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The MAT to be paid by an Indian or a foreign entity can be carried forward and adjusted against regular tax payable during the subsequent five-year period, subject to certain conditions. Additionally, re-openings are allowed for seven years if new information is available or if something hasn’t been assessed. That means some of the draft MAT orders could be issued till as late as March 2022. Experts say it is up to Jaitley to decide whether the rules should be followed or whether the taxman should write off some demands to avoid giving rise to a perception of a confrontational tax regime.
Foreign portfolio investors are looking for clarity on the applicability of MAT for the past years. It would be good if the government addresses this issue while passing the Finance Bill and remove uncertainty surrounding this issue. The investor's confidence in the Indian economy has just started building up, hence, all such contentious issues should be addressed upfront to avoid unnecessary dispute and litigation, said Vikas Vasal, Partner KPMG
To be sure, pursuing such a large number of cases could be counterproductive to the government. FIIs have already started approaching tribunals to contest the tax demands they have received so far. In case of draft orders, they are moving the Dispute Resolution Panel (DRP), while for final demands, they are approaching the Commissioner of Income Tax (Appeals).
As such, it is reasonable to assume notices or final orders will end up before tribunals and hit India’s image as an investor-friendly destination, at a time when the government has declared that as one of its priorities. On the other hand, ambitious infrastructure and social spending schemes mean the tax department has to meet its ever- increasing targets.
