MAT is an alternate income tax at the rate of 20 per cent to be paid based on the ‘book profit’ of the company, which is to be computed according to the Indian Companies Act requirements. MAT is payable where it exceeds the tax payable on income computed according to the normal provisions of domestic tax law (this typically happens in case of Indian taxpayers claiming tax incentives such as SEZ units).
MAT was originally introduced as a way to deal with companies that had very large profits but did not pay much by way of taxes due to various tax adjustments and incentives.
Nitesh Mehta, executive director, Walker Chandiok & Co LLP, says, “A notice to levy MAT on foreign PE/FPIs (foreign portfolio investors) does not go well with the scheme of taxation. Foreign companies are not required to prepare financials, including profit and loss accounts, as per Indian company law requirements and, as such, levying MAT on such companies, with no taxable presence in India, could mean an extended interpretation. Also, most of the overseas PE/FPIs could be entitled to tax treaty benefits, in which case issuing any such notice could mean increasing litigation and administrative burden on such foreign taxpayers.”
In the past, around 200 FPIs have received MAT notices from the income-tax department.
The notices sent to the FPIs were with respect to the assessment years 2008, 2009 and 2010.
These FPIs, along with tax experts, from the Big Four audit firms have made representations to the Indian government and are expecting clarity in the Budget set to be presented by Finance Minister Arun Jaitley on Saturday. An appeal against the move is pending in the Supreme Court.
According to a CEO of a leading private equity firm, players who have made use of the Mauritius route while dealing in shares of Indian companies should not be taxed as the tax notices tend to reopen the Mauritius tax treaty. Market experts say these issues need to be resolved on a war footing as they could adversely impact foreign investment.