On Wednesday, in a conference call with FIIs from around the globe, CBDT chairperson Anita Kapur had promised to instruct tax officers to expeditiously deal with all MAT-related cases.
During the same call, minister of state for finance Jayant Sinha and revenue secretary Shaktikanta Das had clarified that all FIIs operating out of treaty countries, like Mauritius and Singapore, are not required to pay MAT. MAT is a tax payable by companies which, because of several exemptions, are able to show a very low taxable income or at times no taxable income. The IT department's contention is that since FIIs did not pay any tax, they will be eligible to pay MAT on a retrospective basis.
Friday's CBDT circular will help decide which FIIs will be liable to pay MAT and which will not. "As far as treaty eligibility is concerned, that matter will be disposed of expeditiously and uncertainty relating to MAT will not linger for long," said Gautam Mehra, leader, financial services tax, PwC India.Since November last year, the tax department has issued about 68 notices to FIIs asking them to pay MAT on retrospective basis even if they were eligible for zero capital gains tax, a contention that FIIs are challenging. Till recently, FIIs did not pay any tax on long term gains on stocks, but paid 15% on short-term capital gains on listed stocks and 5% on gains from bonds.
Tax practitioners said Friday's circular will bring in partial clarity about FII investments in India. According to Manoj Purohit, partner, Walker Chandiok & Co, the CBDT instruction brings in "some certainty to FIIs protected under tax treaties, as they will have a clarity on application of MAT within one month from the date such a claim is filed."
CBDT circular to help find FIIs liable to pay MAT
MAT is a tax payable by companies which, because of several exemptions, are able to show a very low taxable income or at times no taxable income. The IT department's contention is that since FIIs did not pay any tax, they will be eligible to pay MAT on a retrospective basis.
Friday's CBDT circular will help decide which FIIs will be liable to pay MAT and which will not. "As far as treaty eligibility is concerned, that matter will be disposed of expeditiously and uncertainty relating to MAT will not linger for long," said Gautam Mehra, leader, financial services tax, PwC India.
Since November last year, the tax department has issued about 68 notices to FIIs asking them to pay MAT on retrospective basis even if they were eligible for zero capital gains tax, a contention that FIIs are challenging. Till recently, FIIs did not pay any tax on long term gains on stocks, but paid 15% on short-term capital gains on listed stocks and 5% on gains from bonds.
Tax practitioners said Friday's circular will bring in partial clarity about FII investments in India. According to Manoj Purohit, partner, Walker Chandiok & Co, the CBDT instruction brings in "some certainty to FIIs protected under tax treaties, as they will have a clarity on application of MAT within one month from the date such a claim is filed."
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