FIIs/FPIs exempted from MAT purview for the period prior to 1 April 2015

The Union Government on 1 September 2015 decided to exempt Foreign Institutional Investors (FIIs)/ Foreign Portfolio Investors (FPIs) from paying Minimum Alternate Tax (MAT) for the period prior to 1 April 2015.

The decision was based on Justice A P Shah Committee’s report that was submitted to the Union Ministry of Finance on 25 August 2015. It is expected to improve ease of doing business conditions in the country.

Recommendations of Justice A P Shah Committee

To bring an amendment to Section 115JB of the Income Tax (I-T) Act, 1961 clarifying the complete inapplicability of the MAT provisions to FIIs/FPIs (OR)

Central Board of Direct Taxes (CBDT) may issue a circular clarifying the complete inapplicability of the MAT provisions to FIIs/FPIs.

In accordance with the above suggestions, the government decided to bring an amendment to the I-T Act, 1961.

Background

As per the Finance Act, 2015 the 20 percent MAT on Capital Gains made by FIIs/FPI was waived off from the financial year 2015-16.

However, the issue of imposing MAT prior to 1 April 2015 became controversial as the FIIs raised objections to 68 notices (in lieu of 602 crores rupees) issued by the International Taxation Wing of the Income Tax Department in lieu of MAT.

Against this background, the ministry constituted the Justice A P Shah committee 20 May 2015 to recommend on the issue.

Minimum Alternate Tax (MAT)

• It is a direct tax and was introduced during 1997-98 financial year by the Union Government in order to make the companies pay minimum amount as tax irrespective of tax exemptions that a company is availed of under various tax saving provisions.
• It is calculated on the book profits of a company.
• It can be carried forward and set-off (adjustment) against regular tax payable during the subsequent five-year period subject to certain conditions.
• It is applicable to all companies except those engaged in infrastructure and power sectors.
• Income arising from free trade zones, charitable activities, investments by venture capital companies is also excluded from its purview.

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