Foreign funds to contest tax demands - Times of India

The author has posted comments on this article TNN | Apr 6, 2015, 04.41AM IST

NEW DELHI/MUMBAI: The tax department is critical of the way issues are being raised by overseas investors. "They seem to be trying to browbeat us through a sustained campaign... if you want to do business in a country and derive value from the country, you are liable to pay tax in that country," the officer added.

But worried over the "retrospective" notices and assessment orders, the foreign investors have begun lobbying intensely with policy makers and regulators, while stating that the move goes against the government's stated position of providing a 'non-adversarial and stable tax regime'. Government officers said the amendments proposed in the latest Finance Bill will apply prospectively and not retrospectively as FIIs are lobbying for. Till March 31, close to 100 Funds got notices from the tax department for a controversial Minimum Alternate Tax (MAT) of 20%, while they are now being followed up with assessment orders. The levy will result in foreign funds paying 20% tax making the capital gains tax regime irrelevant. The government taxes short-term capital gains at 15% and there is no long-term capital gains tax on investment beyond one year.

FIIs have decided to challenge tax demands, stating that MAT cannot be levied on FIIs or FPIs as they do not earn any 'business income' in India and their income is defined as 'capital gains' under the I-T Act.

With inputs from agencies.