In an attempt to allay concerns of foreign institutional investors (FIIs) regarding minimum alternate tax (MAT), the government on Friday reassured them that they would be able to avail of treaty benefits wherever applicable and the Central Board of Direct Taxes issued a circular directing its officials to “expeditiously” decide on such claims.
“It has come to the notice of the Board that several FIIs receiving income from transactions in securities claim such income as exempt from tax by availing benefit provided in the 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…decision may be taken on such claims within one month from the date such claim is filed,” the CBDT said.
Tax experts, though welcomed the step, said that the controversy would continue for those FIIs not protected by any tax treaty. “This … step will clear the uncertainty for some categories of foreign portfolio investors. For those who do not have treaty protection, the controversy would continue till it is settled either by the government or by the courts,” Sunil Shah, partner, Deloitte Haskins & Sells LLP, said.
Finance minister Arun Jaitley said that the circular issued will not be applicable to private equity (PE). “Treaty benefits will be accorded in MAT cases where applicable. The notification from CBDT will be applicable only to FIIs, not PE funds,” Jaitley said.
The circular comes two days after the government reached out to around 1,000 FIIs across the US, Singapore, Hong Kong and Mauritius, assuring them that they can claim treaty benefits, following the tax notices sent to them for alleged non-payment of MAT on the capital gains made by them in the past up to March 31.
However, experts said that certain concerns remain. Sameer Gupta, financial services tax leader, EY, “If the intent was to clarify that treaty provisions do override MAT… then the instruction does not explicitly bear that out.”
Meanwhile, during the day, minister of state for finance Jayant Sinha said in a written reply to the Lok Sabha that the income tax department has issued notices in 68 cases to FIIs for payment of dues totalling Rs 602.83 crore towards MAT.