Deferral to 2016 is welcome, but GAAR still needs clarity
The committee suggested that where the tax treaty itself has anti-avoidance provisions or limitation of benefits (LOB) clauses, such as in the tax treaty with Singapore, GAAR provisions should not override the treaty. To complete the picture, the committee recommended that the amendment in the income tax law providing that GAAR overrides the tax treaties entered by India with various countries should be suitably amended. The press release simply tells us that, where both GAAR and specific anti-avoidance rule (SAAR) are in force (read where both are applicable), then only one of them will apply. It appears that there will be discretion with the tax officer as to which of the two is more beneficial to the revenue and to apply the same. There is a lack of clarity on whether a TRC issued by the Mauritian tax authority will be respected and obviate the need to invoke GAAR. Similarly more information is required on the status of SAAR and LOB clauses in the tax treaties. It appears that GAAR may continue to override tax treaties in cases involving unacceptable tax avoidance and all the recommendations of the committee have not been accepted in the matter.
Investments made before August 30, 2010, i.e. the date of introduction of Direct taxes Code Bill 2010 in Parliament, will
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