The Central Board of Direct Taxes (CBDT) said it won't issue any new demands for payments, and will take no coercive action to pursue claims that have already been filed under the controversial minimum alternate tax (MAT).
This follows Finance Minister Arun Jaitley's announcement of a high-level committee for looking into the issue of levy of MAT on foreign institutional investors (FIIs).
"In the light of FM's announcement, officers dealing with International Taxes have been advised that no coercive action be taken for recovery of demand already raised by invoking provisions of MAT in the cases for foreign companies. Issues of fresh notices for reopening of cases as also completion of assessment should also be put on hold unless the case is getting barred by limitation," a CBDT circular said.
Replying to the debate on the Finance Bill, 2015-16, in the Rajya Sabha last week, Jaitley said that he had received a large number of representations on MAT applicable to FIIs as well as a few other tax issues, which are essentially legacy issues, and these would be referred to a committee headed by Justice A P Shah, the chairman of the Law Commission.
Jaitley had announced exempting FIIs from paying MAT on the capital gains earned by them, but soon after the income tax department sent notice to at least 90 foreign portfolio investors (FPIs).
With the uncertainty created by MAT, foreign investors sold around $630 million in Indian shares and bonds, marking the biggest single-day sales since January 2014.
As per preliminary depositary data, it was the biggest single day sell-off since foreign investors sold around a net $877 million on January 27, 2014, when emerging markets suffered from withdrawals sparked by fears of the US Federal Reserve raising interest rates.
Shares and bonds wiped out entire gains for the year over the past few weeks, with the Nifty down 11 per cent since hitting a record high on March 4.