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Clarity On MAT Issue Likely In Finance Bill

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The government is likely to clarify at the time of passage of Finance Bill in Parliament that MAT will not be applicable on foreign portfolio investors belonging to nations with whom India has double tax avoidance pacts.

The benchmark BSE Sensex, meanwhile, fell by 155 points to 27,735.02 as government's clarification on taxation policies failed to soothe nerves of investors, leading to profit taking in blue-chip stocks such as SBI.

The Budget session of Lok Sabha ends on May 8, while Rajya Sabha will continue till May 13. The Finance Bill is likely to be taken up for discussion in Parliament next week.
The double taxation avoidance treaties with various countries will be studied separately while exempting the FIIs from paying MAT, sources in the Finance Ministry said.
Earlier in the day, Minister of State for Finance Jayant Sinha said the government was considering clarificatory amendments to Minimum Alternate Tax (MAT) rules.
"Clarificatory amendments to MAT rules are under consideration of the government," Sinha said.
In a relief to foreign investors slapped with Rs 40,000 crore tax demands, the government on Wednesday night (22 April) had said such levies would not be applicable to the entities based in countries having double taxation avoidance pacts with India, while others can approach the courts for reprieve.
While making it clear that the government cannot withdraw the tax demands, top Finance Ministry officials had told the aggrieved foreign investors that they can claim benefits available under the DTAAs, which would over-ride such demands.
The assurances came during meetings and conference calls the foreign portfolio investors had with Minister of State for Finance Jayant Sinha, Revenue Secretary Shaktikanta Das, Central Board of Direct Taxes (CBDT) Chairperson Anita Kapur, among others.
Sources said the assurance can be a major relief on this issue, as a large number of such investors are from countries like Singapore and Mauritius that have DTAAs with India.
According to sources, while foreign investors paying capital gains tax in their home nations will not be subject to 20 per cent minimum alternate tax (MAT), investors coming from DTAA nations like Mauritius and Singapore too may be exempt as there is no tax on capital gains there.
"The clarification on MAT is likely to come up in Finance Bill. The Government would clarify that forein investors would get tax treaty benefit for past years also," a source said.
The Finance Bill is likely to be taken up for discussion in Parliament next week.
Besides, the applicability of MAT on interest rate on fixed income securities and other streams of debt income would also be clarified in the the Finance Bill, sources said.
As many as 90 per cent of foreign investors in India are domiciled in Mauritius and Singapore.
However, those FIIs which route their investments through countries which do not have tax treaty with India, they have the recourse to judicial remedy.
Last month the income tax department had slapped notices on foreign portfolio investors (FPIs) saying they have to pay 20 per cent MAT on untaxed capital gains made by them over the past three years.
So far, these investors were subjected to only short-term capital gains tax of 15 per cent.
In a conference call with several foreign investors, Sinha and Revenue Secretary Shaktikanta Das had clarified that such levies would not be applicable to the entities based in countries having double taxation avoidance pacts with India.
Sources said that the foreign investors would have to reply to the I-T notices proving their place of residence which will make them eligible for reprieve under the tax pacts.
After talking to the investors, who have already made several representations against tax demands totalling about Rs 40,000 crore, Sinha had yesterday said the government was responsive to the investors' concerns.



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