Govt sets up panel on MAT: 5 things you need to know

The government on Friday announced setting up of a high-level committee on Minimum Alternate Tax (MAT) on foreign institutional investors (FIIs). The move comes in the wake of the controversy over imposition of the tax on foreign investment in Indian share market.

Here are five things to important points to know about the controversy:

1. MAT was introduced (in 1988-89) to curb rise of 'zero tax companies' who avoid paying taxes by making use of loopholes in tax policies by way of exemptions. It is a 20 per cent tax levied on FIIs on the profit earned by them by trading in the share market.

2. Finance Minister Arun Jaitley had announced exempting FIIs from paying MAT on the capital gains earned by them, but soon after the Income tax department sent notices to at least 90 foreign portfolio investors (FPIs) on the same. The number could go up to 6,000 over payment of MAT. There could be approximately Rs 603 crore taxes to be paid by 90 FPIs who have been sent the notice. However, many could get exempted under double taxation avoidance. Double taxation is the levying of tax on the same income by two jurisdictions which is mitigated by tax treaties between countries.

3. FPIs from US and UK have challenged levy of the tax in Bombay High Court. The I-T department had sent a notice to Luxembourg-domiciled FPI Aberdeen as well, for payment of $50,000 as taxes, which the Bombay High Court has currently stayed.

4. The uncertainty on the way forward reflected on the stock market, after BSE tanked 3.24 per cent in the first week of May losing as much as 891 points (FII pull-out + Sensex crash).

5. Finance Minister Arun Jaitley has assured foreign investors that an "extremely simplified" income tax return form will soon replace the MAT. The high-level committee appointed by Jaitley on Friday will give its recommendations on levy of MAT on the foreign investors.

The setting up of the committee has got a thumbs-up from the stock market. The BSE Sensex was trading at 26,983 at 12.20 pm gaining almost 384 points.