I-T sleuths told to go easy on tax dues against foreign portfolio investors

The Dollar Business Bureau

The Chairperson of CBDT, Anita Kapur (first on the right side) briefing the media, in New Delhi on June 16, 2015. Source: PIB, Government of India

  Amid concerns over outward movement of overseas funds from the Indian stock market after tax notices slapped on foreign portfolio investors (FPIs), the Income Tax department has said that it will not take coercive measures to recover tax dues from FPIs. A number of Foreign Portfolio Investors (FPIs) have challenged the tax recovery notices sent to them before April 2015. In the annual budget for the current financial year, the government has exempted FPIs from paying Minimum Alternate Tax (MAT) on their income occurred from trading in securities and stocks. According to reports, 68 FPIs were served notices for tax dues of around Rs 680 crore on their various cross-border transactions that took place till March 2015. Many of them have challenged the demand in courts. Now the Income Tax department has asked its officials not to pursue MAT-related cases that have been pending in courts. “Assessing officers cannot redo their order on levying of MAT on FIIs, but if order is in appeal, then we can certainly tell our assessing officer please don't take it further, don't agitate it in further and this is exactly what we did in Shell and Vodafone tax case,” Central Board of Direct Taxes (CBDT) Chairperson Anita Kapur reported to have said on Tuesday. Last month, FPIs were net sellers in the debt and equity markets, eroding more than Rs. 14,000 crore from the Indian stock market. Analysts say that the fear of more MAT demands in future triggered the outflow of foreign funds. According to the Income Tax Act, foreign investors are liable to pay 20% tax on long-term capital gains. FPIs argue that income through transfer of stocks do not come under capital gains. Also, the tax should not be levied on FPIs because they do not have business operations in India. Earlier, capital market regulator SEBI (Securities and Exchange Board of India) had also written a letter to the Finance Ministry to support FPIs. The government has already constituted a panel headed by retired justice AP Shah to review the MAT regime.    

June 17, 2015 | 9:51 pm IST.