GAAR put off by two years to woo foreign investors
Foreign investments into the Indian stock markets got a long term measure of certainty on their tax treatment. On Monday, finance minister P Chidambaram clarified that the controversial amendment on tax avoidance norms has been deferred by two years. The general anti-avoidance rules (GAAR), which created a lot of uncertainty among foreign investors, will now be implemented from April 1, 2016.
Before leaving for Singapore to promote India as an attractive investment destination, the minister brought in a wide range of steps to undo the damage created by Budget 2012-13 that had led to flight of investment from the stock markets.
The changes announced by Chidambaram broadly follow the Parthasarathi Shome committee recommendations. The committee was set up by Prime Minister Manmohan Singh as FIIs voiced their concerns on the tax laws.
The minister said, “GAAR will be applied only in cases of tax avoidance. We have tried to strike a balance between investment concerns and revenue interests of the government.”
The seventeen measures announced by the finance minister says the anti-avoidance rules will kick in only where the tax department is convinced that avoiding taxes was the main reason for coming through a tax haven or an arrangement. The current provision is that the rules will operate even if tax avoidance is only one of the main provisions.
FIIs and participatory notes which do not apply for benefits under a double taxation avoidance agreements (DTAA) that India has with Mauritius will not come under GAAR. While the Shome committee had said
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