Government defers GAAR implementation to April 2016 - Angel Broking

The government has deferred the implementation of General Anti Avoidance Rules (GAAR) by two years until April 01, 2016 and has accepted major recommendations of the Expert Committee on GAAR with some modifications. This development is expected to come as a major relief for foreign investors by abating tax uncertainty. We believe that this measure is also likely to boost investor confidence and thereby attract capital inflows in the economy.

Background:

The GAAR provisions, aimed at curbing tax avoidance by foreign investors, were introduced in the FY2013 Budget by then FM Pranab Mukherjee and raised apprehension by overseas investors particularly with regard to application with retrospective amendment. Following this, a Committee led by Dr. Parthasarathi Shome was constituted to undertake stakeholder consultations and finalize the guidelines for GAAR.

The Shome Committee recommended that an amendment to the income-tax law seeking to tax indirect transfers of Indian assets should apply prospectively and only on those who make capital gains. Even in 'rarest of rare' cases where retrospective taxes are applied, it recommended exhaustive and transparent consultation with stakeholders and waiver on interest levies or penalties. It also recommended the exclusion of FIIs, listed companies' P-notes and stock market transactions from the ambit of the retrospective amendment.

Accordingly, Finance Minister P Chidambaram indicated yesterday that modifications done to the GAAR provisions are aimed at making it fair, nondiscriminatory, just and striking a balance between interest of revenue and interest of investors. Some of the major decisions are that it will not apply to FIIs that choose not to take any benefit under the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs. In addition, a monetary threshold of Rs.3cr tax benefit in the arrangement will be provided in order to attract the provisions of GAAR. Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code (DTC) Bill, will also be exempt from the provisions of GAAR.

Source : Equity Bulls

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