Why FII's are worried about Minimum Alternative Tax (MAT)

A key reason for recent market correction is the issue about Minimum Alternative Tax (MAT), which has worried foreign investors for some time now. FIIs are one of the biggest players in the Indian market. So, their stock trading affects the overall market directly. Worries about the MAT issue, however, have limited FII participation in the markets and have selling heavily in cash market  in the recent past, leading to the consistent fall.

Let me understand MAT and its implication

• What is MAT?

Minimum Alternative Tax is an addition to the Income Tax, levied by tax authorities. It was introduced in 1997-98 to prevent companies from using loopholes and exemptions in the Income Tax Act to avoid paying tax. So, MAT acts as a threshold tax rate. Every company has to pay tax at this rate of 18% even if its effective tax rate is lower. However, there has been confusion over whether MAT is applicable for capital gains by foreign investors in the Indian markets.

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