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After setting up a committee to examine past cases of minimum alternate tax (MAT) on foreign institutional investors (FIIs), the Income Tax Department on Monday put on hold all fresh notices in these cases. Also, the recovery of demands aggregating about Rs 603 crore might not be pursued.
"The issue of fresh notices for reopening of cases and the completion of assessment should also be put on hold unless the case is being barred by limitation," the Central Board of Direct Taxes said in an advisory to the international taxation office.
Though Budget 2015-16 exempted foreign portfolio investors (FPIs) from MAT from this financial year, past cases have continued, with the ministry issuing notices and demand orders to FIIs on such cases. While notices were sent to FIIs for 2008-09, orders were issued for 2011-12. These were time-barred as of March 31 this year.
Now, notices for 2009-10 and demands for 2012-13 would be time-barred as of March 31, 2016, which would be put on hold.
Notices are time-barred in seven years and orders in three years.
While the I-T department had issued notices in 68 cases, orders were issued to the tune of Rs 602.83 crore, against an earlier figure of Rs 40,000 crore doing the rounds.
The I-T department has also asked officials not to be coercive on the orders already issued. "In the light of the FM's announcement (of setting up a committee headed by Law Commission Chairman A P Shah), no coercive action should be taken for recovery of demand already raised by invoking provisions of MAT in the case of foreign companies," the advisory said.
"Demands will not be recovered even in case assessments have been completed," said Rajesh H Gandhi, partner, Deloitte Haskins & Sells LLP.
In reply to discussions on the Finance Bill in the Rajya Sabha last week, Finance Minister Arun Jaitley had announced the constitution of a panel headed by Shah. While Jaitley did not set any timeframe for the panel to submit its report, it is expected the committee will provide recommendations expeditiously, sources say.
"Now, all eyes will be on the committee and the FII community will be keenly waiting for its recommendations. This shows the government is trying to be sensitive to the concern of taxpayers," Gandhi said.
If MAT is levied on FPIs, their tax liability goes up to 20 per cent, against zero tax on long-term capital gains. As such, MAT notices have often spooked markets.
Recently, ratings agency Fitch said MAT notices might result in FPIs thinking twice about investing in Indian markets.
As of May 8, FPIs had reduced their exposure to Indian capital markets, pulling out about Rs 12,000 crore.
A month-on-month analysis shows the fund flows are witnessing a decline. In January, FPI investments stood at Rs 33,688 crore, before falling to Rs 24,564 crore in February, Rs 20,723 crore in March and Rs 15,266 crore in April.
| THE MAT EFFECT |
2014
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