MAT genie put in bottle

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. Recent controversies on tax disputes has hit India’s image among overseas investors and the Modi government through its series of decisions is trying to address these issues.

Foreign companies, irrespective of whether they belong to a country with which India has a Double Taxation Avoidance Agreement (DTAA), has been exempted from MAT on profits from April 2001 if they do not have a place of business in India, a finance ministry statement said.

In case the companies belong to countries with which India does not have a DTAA, the MAT exemption will apply if they are exempted from registration under Section 592 of the Companies Act 1956, or Section 380 of the Companies Act 2013. Under these sections, firms are exempted from registration if they do not have a ‘place of business’ in India. Also provisions of Section 115JB of Income Tax will not apply to foreign companies with effect from April 1, 2001, if they are resident of a country with which India has DTAA and they do not have a PE in India. “An appropriate amendment to the I-T Act in this regard will be carried out,” the finance ministry said.

“This decision would have positive impact on the foreign investments. With this amendment, one can look forward to speedy solutions to pending tax disputes as the Government’s intentions is evident that it wants to end the tax uncertainty,” said Manoj Purohit, Partner, Walker Chandiok & Co LLP.

PwC India, senior tax partner, Ketan Dalal said this circular certainly comes as a relief. “While one could always say that this issue should not have arisen at all, it is a manifestation of the government’s receptivity to addressing tax uncertainty. Hopefully, this put at rest most of the litigations of the past years; the future has already been addressed through amendment in the law,” he added.