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Again there is a major relief to the markets and investors, as the said GAAR, the controversial law against tax avoidance through foreign investments, has been deferred to April 2016 by the Finance minister P Chidambaram on 14th January 2013 (Monday).
Previously, GAAR (General Anti-Avoidance Rules) was proposed to be applicable in 2012-13 budget with a view to preventing tax evasion, evoked sharp reactions from foreign as well as domestic investors who feared that uncontrolled powers to taxmen would result in harassment of investors. After a protest by both foreign and Indian investors, FM Pranab Mukherjee announced that the General Anti-Avoidance Rules (GAAR) will be applied from 2013-14 onwards, deferring its application by a year.
But again the government appointed a committee headed by tax expert Parthasarthi Shome to look into their concerns.
As reported by the Economic Times of India “GAAR postponement will be a big positive,” said Dinesh Kanabar, Deputy CEO, KPMG.
Chidambaram, during an interview to PTI in November last year, said amendments to GAAR have been finalised.
“I have finalised the amendments to the Chapter 10A of the Income Tax Act. Now it will go to the PMO and then we should be ready with the amendments and then the GAAR rules will reflect the amended Chapter 10A which generally deals with taxation of investments.
“That is under preparation and I think the work is almost complete. The drafting work is complete. So, GAAR is under control. I have taken the decisions, subject to Prime Minister’s approval and then Cabinet,” he said.
Under the GAAR system, authorities can deny tax benefit to any arrangement that is entered into primarily to avoid tax. The rule will almost certainly tax foreign institutional investors that route portfolio investments into India through token operations in Mauritius with which India has a tax treaty.
The GAAR provisions, the Minister also clarified, would override the double taxation avoidance agreement (DTAA) benefits if the arrangements were intended solely to evade taxes.