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Amended I-T Act exempt foreign companies under DTAAs from MAT

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In a move to attract foreign firms to invest more in the country the Government announced that Income-Tax (I-T) Act would be amended with effect to exempt overseas companies which do not have a permanent establishment in India from paying MAT.

Amended I-T Act exempts foreign companies under DTAAs from MAT

PROVISIONS
Under these sections, firms are exempted from registration Minimum alternate Tax in India:

  • Foreign companies that do not have a permanent establishment in India will be exempt from paying minimum alternate tax (MAT) on profits from April 2001.
  • The provisions of Section 115JB of Income Tax will not apply to foreign companies with effect from April 1, 2001, if they are resident of a country with which India has Double Taxation Avoidance Agreement (DTAA) and they do not have a permanent establishment (PE) in India.
  • Companies belong to countries with which India does not have a DTAA MAT exemption will apply if they are exempted from registration under Section 592 of the Companies Act 1956, or Section 380 of the Companies Act 2013.

Earlier government had exempted foreign institutional and portfolio investors from payment of MAT on the capital gains made by them before April 1, 2015. Through the amendment the government will clarify that MAT provisions will not be applicable to FIIs/FPIs not having a place of business/permanent establishment in India, for the period prior to April 1

KEY

  • MAT is levied under India’s Income Tax Act of 1961 that targets companies that show profits on their books and declare dividends but pay minimal or no tax as per Section 115JB. Under this, company having book profits under the Companies Act shall have to pay @18.5%.
  • A.P. Shah (Ajit Prakash Shah) committee – to see whether minimum alternate tax (MAT) can be applied on foreign portfolio investors (FPIs)