MAT to be applicable on FIIs and FPIs

The Income Tax department has issued demand notices of MAT to around 100 FIIs and more than 50 FPIs. Department has been reopening cases as it believes that income has escaped the assessment in the previous years based on decision given by Authority of Advance Ruling a quasi-judicial body, in the favour of government stating that MAT shall be applicable to FIIs and FPIs. FPIs are currently paying 15% tax on capital gains for less than 12 months and no tax on long term capital gains as the same are STT paid. Investors are treating issuance of such notices as retrospective action on the part of government however the government has exempted applicability of MAT from the FY 16-17. IT department believes that FPIs are required to maintain accounts under the Act and hence liable to pay tax on book profits. Finance Minister Mr. Arun Jaitely comments on the recent development that there has been no retrospective applicability of MAT and every demand of tax is not tax terrorism and opposite of tax terrorism doesn’t mean tax haven. Finance Minister also feels that FIIs and FPIs cannot escape their moral duty to pay tax on the grounds of tax terrorism.