Centre Decides to go Easy on Taxing Foreign Investors

In one of the biggest reforms so far, govt accepts Shah panel recommendation on inapplicability of retrospective tax on overseas portfolio investors till April 1, 2015; I-T Act up for amendment

Published: 02nd September 2015 04:21 AM  |   Last Updated: 02nd September 2015 08:28 AM   |  A+A-

NEW DELHI: After months of wobbling, the government has finally decided to go easy on taxing foreign investors. The Finance Ministry on Tuesday accepted the Justice A P Shah panel’s recommendations on the controversial Minimum Alternate Tax (MAT), which suggested that Foreign Portfolio Investors (FPIs) need not pay MAT prior to April last.

The move is likely to have multiple benefits. It will restore India’s ‘investor-friendly’ image that took a beating due to slow pace of reforms, improve ease of doing business ranking from the current 142, prevent flight of foreign capital — FPIs pulled out $2.65 billion in August — and importantly, amicably resolve high-profile cross-border tax disputes, including Vodafone’s $2.5 billion tax slap, Nokia’s $340 million and Cairn Energy’s $1.6 billion tax demand. It will give also relief to over 100 FPIs that were slapped notices to collect MAT retrospectively.

While existing tax disputes will be disposed of, this will, however, take time. The government first has to amend the Finance Act, 2015, to change the Income Tax Act and ensure MAT is not applicable on transactions prior to April.


According to Finance Minister Arun Jaitley, the Shah panel’s 68-page report was the final draft of the panel and the government will move an amendment to the I-T Act in the winter session of Parliament.

Till such time, the Income Tax Department will issue a circular to field formations for holding back action on notices issued for levy of MAT. Those who have deposited the money will get a refund under existing tax regulations.

During Budget 2015, Jaitley said there will be no MAT from assessment year 2016-17, though tax officials issued notices. With 95 per cent of the FPIs that received MAT demand notices knocking the doors of the dispute resolution panel or high courts, the government, to mollify investors, formed a panel headed by Justice Shah and former chief economic advisor Ashok Lahiri and chartered accountant Girish Ahuja as members.

Originally, MAT was introduced to curb ‘zero tax’ companies, who despite showing profits in the balance sheet computed under the Companies Act, avoid taxes citing incentives and deductions.

This was the first time since 1993, when FIIs were allowed to invest in the market, that they have been asked to pay MAT.

Stay up to date on all the latest Nation news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp