Minimum Alternate Tax (MAT)

MAT to Foreign investors: More clarity sought on P-Notes


  1.  Government accepting the recommendation of the Justice A.P. Shah Committee on applicability of Minimum Alternative Tax (MAT) to Foreign Portfolio Investors (FPIs).
  2. Government has decided to make appropriate amendments to the Income-tax Act, which would clarify that MAT provisions would not be applicable to FPIs not having a place of business or permanent establishment in India, for the period prior to April 1, 2015.
  3.  P-Notes are overseas derivative instruments (ODIs) issued by FPIs (earlier Foreign Institutional Investors) to overseas investors, who wish to invest in the domestic stock market without registering themselves with the Securities and Exchange Board of India (SEBI).
  4. The decision will help in reviving the investor confidence and ensuring clarity of taxation in the hands of the foreign investors.
  5. MAT was intended to be applied on companies paying no or low tax even though declaring higher profits.It is not applicable to foreign companies not having a place of business or permanent establishment in India.
  6. As also noted by the A P Shah committee, a change in this settled position in August 2014 is extremely late in the day and is against the intent of the legislation.
  7.  The Finance Act, 2015 attempted to rationalise the position by providing relief from MAT to foreign companies on capital gains, royalties, interest and fees for technical services earned in India with effect from April 1, 2015.

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