CBDT to settle FII tax claims under DTAAs within a month

Seeking to quickly resolve the controversial tax issue facing foreign portfolio investors, the Central Board of Direct Taxes (CBDT) on Friday said that all claims coming under the ambit of DTAAs will be settled within a month of being filed. “It has been decided that in all cases of foreign institutional investors (FIIs) seeking treaty benefits under the provisions of respective DTAAs, a decision may be taken on such claims within one month from the date such claim is filed,” the CBDT said.

In a communication to top tax officials, the CBDT has asked for “strict compliance” of instructions as the number of such cases is limited, “such claims should be decided expeditiously”. The Income Tax (I-T) Department has sent notices in 68 cases to FIIs for payment of dues totalling Rs 602.83 crore towards Minimum Alternate Tax (MAT), according to information provided in the Lok Sabha on Friday.

Following a decision by the Authority of Advance Rulings (AARs), the Tax Department had slapped notices, saying they have to pay 20 per cent MAT on untaxed capital gains made by them over the past three years. As the issue has generated a lot of controversy, Finance Minister Arun Jaitley is expected to come out with some clarification at the time of his reply to the debate on the Finance Bill in the House.

The CBDT said several FIIs, which have received income from transactions in securities, claim such income as exempt from tax under the Double Taxation Avoidance Agreements (DTAAs) signed between India and their countries of residence. According to experts, foreign investors paying capital gains tax in their home nations will not be subject to the 20 per cent minimum alternate tax (MAT) in India.

Commenting on the circular, Deloitte Haskins & Sells LLP Partner Sunil Shah said that for those investors who do not have treaty protection, “The controversy would continue till it is settled either by the Government or by the courts”.

“The applicability of MAT provisions is a legal issue and wherever the cases require application of MAT provisions, the same is being done,” Minister of State for Finance Jayant Sinha said in a written reply to Lok Sabha. Asked if the tax department has slapped notices to 100 overseas funds for evasion of tax to the tune of USD 5-6 billion, Sinha said notices were issued only in 68 cases, envisaging total tax demand of Rs 602.83 crore. “Tax notices have been issued in 68 cases of overseas funds to bring to tax the book profits as per MAT provisions under section 115JB of the Income Tax Act, 1961. So far, total tax demand of Rs 602.83 crore has been raised,” the Minister said.

Following a court ruling, the Income Tax department had slapped notices on foreign portfolio investors (FPIs), saying they have to pay 20 per cent MAT on untaxed capital gains made by them over the past three years.  According to experts, foreign investors paying capital gains tax in their home nations will not be subject to the 20 per cent minimum alternate tax (MAT) in India. 

Besides, investors coming from nations with which India has a double taxation avoidance agreement (DTAA) such as Mauritius and Singapore may be exempt as there is no tax on capital gains there.