In a move that will soothe investors' frayed nerves, the finance ministry is likely to soon clarify on rules pertaining to minimum alternate tax (MAT).
Besides, foreign institutional investors (FIIs) belonging to nations with whom India has double tax avoidance agreements (DTAA) are likely to be exempted from paying MAT, finance ministry sources said.
"Clarificatory amendments to MAT rules are under consideration of the government," minister of state for finance Jayant Sinha said on the sidelines of a conference on climate change.
According to sources, while foreign investors paying capital gains tax in their home nations will not be subject to 20% MAT, investors coming from DTAA nations, including Mauritius and Singapore, too, may be exempt as there is no tax on capital gains there.
"The clarification on MAT is likely to come up in Finance Bill. The government will clarify that foreign investors would get tax treaty benefit for past years also," sources added.
The Finance Bill is likely to be taken up for discussion in Parliament next week.
As many as 90% of foreign investors in India are domiciled in Mauritius and Singapore.
The income tax department recently sent notices to FIIs demanding a 20% MAT on their capital gains till March 31, 2015. However, investors have been arguing that they should not be brought under the ambit of the local tax applicable to companies based in India.
Sources said foreign investors would have to reply to I-T notices proving their place of residence which will make them eligible for reprieve under the tax pacts.
Sinha and top government officials on Wednesday held meetings with FIIs, but refused to relent on the Rs 40,000-crore tax demand.
"We have to think how we can come up with innovative solutions, where domestic venture capital, domestic private equity, some kind of innovative financing arrangement with public sector support can make it possible for us to enable a very valuable solution to take off," Sinha said.