New Delhi, May 8 (IANS) The government on Friday set up a high-level committee on minimum alternate tax (MAT) on foreign institutional investors (FIIs), following the passing of the Finance Bill, 2015-16, in the Rajya Sabha on Thursday.

Replying to the debate on the bill, Finance Minister Arun Jaitley announced a high-level committee for looking into the controversial issue of levy of MAT on FIIs.

"I have received a large number of representations on MAT applicable to FIIs as well as a few other tax issues, which are essentially legacy issues, we have decided to refer to a committee headed by Justice A.P. Shah, the chairman of the Law Commission," Jaitley said.

"Recently, the affected parties moved the Supreme Court for an early hearing. On behalf of the government, it was conveyed to the court that the government had no objection to an early hearing."

"And we are also keen on a final settlement of the issue. It is expected that the Supreme Court will fix an early hearing," the finance minister added.

Jaitley had announced exempting FIIs from paying MAT on the capital gains earned by them, but soon after the Income tax department sent notices to at least 90 foreign portfolio investors (FPIs).

He has assured foreign investors that a very simplified income tax return form will soon replace the MAT.

With the uncertainty created by MAT, foreign investors sold around $630 million in Indian shares and bonds on Wednesday, 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 have wiped out entire gains for the year over the past few weeks, with the Nifty down 11 percent since hitting a record high on March 4.

According to depository data last week, FIIs are set to break an 11-month streak of net inflows into the Indian debt market, having turned net sellers in April for the first time since April 2014.

Net outflows till April 27 have been Rs.817 crore - in the wake of recent tax notices demanding tax at 20 percent on interest income, as opposed to five percent without minimum alternate tax.

"I am considering a high-level committee to explore what can be done to resolve the past and move beyond it in a way that would provide real predictability and certainty to investors," Jaitley wrote last month in an opinion piece in the Financial Times.