In a major relief to foreign portfolio investors, Finance Minister Arun Jaitley today said the government has decided not to levy Minimum Alternate Tax (MAT) on capital gains made by FIIs retrospectively.
Jaitley, who has in his budget for 2015-16 exempted FIIs from payment of MAT with effect from April 1, 2015, said the government has accepted the recommendations of the Justice A P Shah panel that there was no basis for levy of such tax for the prior period as well.
The government, he said, has decided to amend the Income Tax Act to clarify the issue with regard to levy of MAT on FIIs and in the meantime CBDT field officers will be asked not to pursue cases against FIIs.
The announcement comes at a time when the capital markets are witnessing excessive volatility following the global financial turmoil that has led to FIIs pulling out funds from the emerging markets.
Jaitley said legal recourse taken by certain FIIs on being slapped with tax notice would have been time consuming and so the government decided to pursue alternative course for resolving the issue.
"We are of the considered opinion that the alternative course suggested by the Justice Shah panel, that a necessary amendment in the Income Tax Act would be required...(would be pursued). And we would be bringing out that amendment in the statute.
"Meanwhile, pending such amendment, all the field formations will be conveyed by way of circular that this is the decision of the government so they will have to hold their hands and not make or pass any orders in these matters till such time. Hopefully in the winter session of Parliament or whenever there is next session of Parliament, we will be able to bring out such an amendment expeditiously", he said.
