MAT is levied at 20 per cent on capital gains made on the sale of shares in India-listed companies.
In the upcoming Budget 2015-16 to be unveiled on February 28, Finance Minister Arun Jaitley is likely to announce about the applicability of Minimum Alternate Tax (MAT) on Foreign Portfolio Investors (FPIs). As per various media reports, after FPIs, a host of foreign private equity (PE) firms have also received income-tax notices for MAT payment.
MAT is levied at 20 per cent on capital gains made on the sale of shares in India-listed companies. Experts estimate that a tax demand of Rs 1,000 crore has been made from about 35 private equity funds that took advantage of the Mauritius route while selling shares in Indian companies.
"It is worthwhile to note that foreign PE funds are generally covered by the benefit of the tax treaty in respect of capital gains earned from sale of shares by them," Himanshu Parekh, a chartered accountant practising international tax and regulations told Business Standard.
He added, "Further, they are not required to maintain books of accounts as per the Indian Companies Act as they do not carry out any business in India. Thus, attempts to tax the income/gains under MAT provisions would be against the legislative intent."
Nitesh Mehta, executive director, Walker Chandiok & Co LLP, said, "A notice to levy MAT on foreign PE/FPIs (foreign portfolio investors) does not go well with the scheme of taxation. Foreign companies are not required to prepare financials, including profit and loss accounts, as per Indian company law requirements and, as such, levying MAT on such companies, with no taxable presence in India, could mean an extended interpretation. Also, most of the overseas PE/FPIs could be entitled to tax treaty benefits, in which case issuing any such notice could mean increasing litigation and administrative burden on such foreign taxpayers."
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