TAX NEWS - JUNE 2010

India Tax: Govt likely to retain existing Minimum Alternative Tax (MAT), Exempt-Exempt-Tax (EET) regimes in tax code

Faced with stiff opposition from the industry and other stakeholders about the two most contentious issues in the proposed Direct Tax Code — Minimum Alternative Tax (MAT) and Exempt-Exempt-Tax (EET) — the government is likely to stay away from making any changes in the existing regime for both.

Sources told The Indian Express that the proposed Direct Tax Code, a re-draft of which is to be unveiled soon, is likely to retain the existing practices of levying Minimum Alternative Tax (MAT) on book profit as against the proposal to levy it on gross assets.

Also, the government is not likely to tax long-term savings at the time of withdrawal, the sources said. The code proposed that the long-term savings would though be exempt from tax at the time of investment and accrual, they would yet be taxed at the time of withdrawal.

Instead, the current practice of taxation — exempt-exempt-exempt — on long-term savings such as provident funds, approved super superannuation funds, and New Pension Scheme is likely to stay, the sources added.

The draft code placed in the public domain last August had created a huge uproar over many issues. The finance ministry drew a lot of flak from the opposition, the industry and individual tax payers over several of its radical suggestions such as Exempt-Exempt-Tax (EET) and Minimum Alternative Tax (MAT) on gross assets.

In fact, the Prime Minister had also expressed concerns over taxing long-term savings. So relief may be in sight for companies, mainly infrastructure firms, which were worried about the ramifications of the suggested Minimum Alternative Tax (MAT) regime involving taxing gross assets.