Foreign portfolio investors get MAT exemption from 1 April 2001

The government on Thursday announced that it has amended the Income Tax Act 1961, to exempt foreign portfolio investors from paying minimum alternate tax (MAT) retrospectively from April 2001, provided they did not have a permanent establishment in India.

The announcement gives certainty to an earlier announcement by the government exempting foreign portfolio investors from paying MAT on their capital gains from stock market investments.

MAT is a tax levied on entities that do not pay corporate tax because of exemptions and incentives.

A government statement said the provisions of section 115JB of the Income Tax Act will not apply to foreign companies with effect from 1 April 2001, if they are resident of a country with which India has a double taxation avoidance agreement (DTAA) and they do not have a permanent establishment in India.

A double tax avoidance agreement is essentially a bilateral pact between two countries to avoid taxation of the same income in both the countries.

''After due consideration of the various aspects of the matter, the Government of India has decided that with effect from 1 April 2001. The provisions of section 115JB shall not be applicable to a foreign company if:

The  foreign company is a resident of a country having  DTAA with India and such foreign company does not have a permanent establishment within the definition  of the term in the relevant DTAA,  or

The foreign company is a resident of a country which does not have a DTAA with India and such foreign company is not required to seek registration under section 592 of the Companies Act 1956 or section 380 of the Companies Act 2013.''

An appropriate amendment to the Income-tax Act in this regard will be carried out, the statement added.

Earlier, the issues relating to taxation of foreign companies, having no permanent establishment in India, have been under consideration of the government. In this regard, the government has already clarified the inapplicability of MAT provisions to FIIs / FPIs.

The government has now considered the issue of applicability of MAT under section 115JB of the Income Tax Act to foreign companies having no place of business/permanent establishment in India.

Earlier this month, the government had exempted foreign institutional and portfolio investors from payment of MAT on the capital gains made by them before April 1, 2015. The Budget 2015-16 had already exempted FIIs/FPIs from paying the levy on gains made after 1 April.

Finance Minister Arun Jaitley earlier this month had said that the government is looking at speedier resolution of pending tax disputes.