Foreign investors under tax treaty benefits to be exempted from MAT

Exempting foreign institutional investors (FIIs) belonging to countries having tax treaties with India from paying MAT is definitely a positive move and this will encourage other countries to enter into tax treaties with India.

Sai Nikesh | The Dollar Business Tax-Treaty-The-Dollar-Business In a move to address concerns of Foreign Institutional Investors (FIIs), the government, on Friday, assured that FIIs will be able to avail tax benefits wherever possible in accordance to the Minimum Alternate Tax (MAT) cases. The Central Board of Direct Taxes (CBDT) has released a notification to this effect and asked tax officials to resolve issues pertaining to tax claims involving FIIs. The CBDT has asked tax officers to expedite ruling on whether an investor can qualify for the tax treaty benefit and hence will be exempted from MAT. Welcoming the move, Adish C Aggarwala, Chairman, All India Bar Association, told The Dollar Business, “Exempting FIIs, belonging to the countries having tax treaties with India, from MAT claims, is definitely a positive move and this will encourage other countries too to enter into tax treaties with India in order to avail tax benefits.” In its notification, the CBDT said, “It has come to the notice of the Board that several FIIs receiving income from transactions in securities claim such income as exempted from tax by availing benefits provided in the Double Taxation Avoidance Agreements (DTAAs) signed between India and their respective countries of residence.” “Since the issue involved in such cases is limited, such claims should be decided expeditiously and the decision may be taken on such claims within one month from the date such claim is filed,” it added. This move by the Indian government could create a positive environment in the case of FIIs falling under the DTAA. However, the move may not seem positive for the FIIs belonging to the countries that do not come under DTAA. The CBDT circular came two days after the government reached out to 1,000 FIIs across US, Singapore, Hong Kong and Mauritius, giving them assurance on claims that can be made over the treaty benefits, says reports. The government had sent notices to FIIs for alleged non-payment of MAT on the capital gains made by them up to March 31, 2015. A week ago, the Indian government had pushed for a Rs 40,000-crore tax demand on FIIs after they have lost a case before a tribunal against the levy of 20% Minimum Alternate Tax (MAT) on capital gains. The Finance Minister had said that the government has taken decision for abolition of MAT from April 1, 2015, but the tax demand of Rs 40,000-crore pertains to an earlier period and waiving off the same after the case has been won, will come under tax haven.      

 This article was published on April 25, 2015 – 4:33 pm IST.