It's A Misconception That Cloud Is Cheaper
Jairam is wrong: It isn't mining that causes poverty

Economy Jan 14, 2013

GAAR tax laws deferred to 2016, won’t apply to FIIs: FM

By Firstbiz Staff

Implementation of GAAR, the controversial law against tax avoidance through foreign investments, has been deferred by two years to 1 April 2016, Finance Minister P Chidambaram said today.

Following the P Chidambaram's announcement, the Sensex shot up 155 points to 19829 levels while the Nifty broke 6000. The move is likely to assuage foreign investor sentiments, who are opposed to the controversial rule.

The finance ministry had earlier said it would implement GAAR (General Anti-Avoidance Rules) from April, 2014.

The deferral of General Anti-Avoidance Rules had been expected, but supported markets on a day in which data showed India's headline inflation rose at its slowest pace in three years.

AFP

Announcing that the government has accepted the major recommendations of the Parthasarthi Shome committee, which was last year appointed to look into the concerns of foreign investors, Chidambaram said the tax proposal will not apply to foreign institutional investors run by by NRIs and will also enure that the same income is not taxed twice.In other words, investments made by Non-Resident Indians (NRIs) will not be covered by the provisions of GAAR.

However, those arrangements which are aimed at only obtaining tax benefit would be considered as 'impermissible arrangement' and would attract GAAR.

The minimum threshold to come under GAAR will be Rs 3 crore, Chidambaram said.

He also clarified that that GAAR rules will override over an existing tax avoidance agreement.

The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement, added Chidambaram.

GAAR (General Anti-Avoidance Rules), which was proposed in 2012-13 budget with a view to preventing tax evasion, evoked sharp reactions from foreign as well as domestic investors who feared that unbridled powers to taxmen would result in harassment of investors.

Chapter 10A of the Income Tax Act deals with taxation of investments. GAAR became part of the law when the finance bill was passed by Parliament, said Chidambaram today.

"An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement, Chidambaram added.

Chidambaram asked why GAAR and specific anti-avoidance rules (SAAR) were both in force, and only one of them would apply.

Time limits will be provided for action by various authorities under GAAR, he said.

Here are the highlights of the amendments:
•If a tax structure is impermissible, GAAR will apply
•No treaty override in new provision
• GAAR will ensure same income is not taxed twice in the hands of the same taxpayer in the same year or in the next assessment year
• GAAR will not apply to such FIIs that choose not to take any benefit under section 90 and 90A of the IT Act
• If there is a tax avoidance arrangement, the existing provisions of the IT act say that GAAR provisions will prevail

Even Planning Commission chairman Montek Singh Ahluwalia termed the GAAR deferral as a step in the right direction as investors had started viewing the controversial tax norms as a negative.

Meanwhile Mukesh Butani, chairman, BMR Advisors, told CNBC-TV18,"The revenue department has not been liking the recommendations of the expert panel. The Finance Minister seems to have done a balancing act. He has to listen both the sides.

by Firstbiz Staff

Related Stories.