In order to eliminate all ambiguities over the levy of MAT and encourage foreign investment in India—both portfolio and long-term investors— the government clarified the applicability of minimum alternate tax (MAT) on foreign companies with no permanent establishments in the country.
On Thursday, 24th September 2015, the government said that MAT won’t apply to foreign companies that don’t have a place of business in India, providing a major relief to foreign companies by putting to rest another controversial tax issue.
The discrepancy erupted after the income-tax department informed over fifty foreign investors to pay MAT. They opposed the notice because MAT is not applicable to book profits that is not maintained in India. The consequence led the government to set up a panel led by justice A.P. Shah. The committee recommended that MAT cannot be levied on foreign portfolio investors as well as foreign companies who do not have a permanent establishment in India.
Finance Minister Arun Jaitley said the government had accepted the recommendations of a panel and will amend section 115JB of the income tax Act, with retrospective effect from 1 April 2001, to give effect to this decision. He also stated that in case a foreign company is not based in India having a double taxation avoidance agreement (DTAA) with India, MAT will not be applied to it if it is not required to seek registration under section 380 of the Companies Act or section 592 of the Companies Act 1956.