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Finance Minister Makes Statement on GAAR
Meanwhile the Finance Minister has issued a statement regarding the Expert Committee's final report, which was submitted to the Government for consideration in September 2012, wherein it was said that the majority of recommendations have been accpeted with some modifications. Taxand India summarises the highlights of the Finance Minister's statement.
- The provisions of GAAR shall come into force with effect from 1 April 2016, which means it would apply from the Financial Year (FY) 2016-17.
- All investments made before 30 August 2010 (being the date when the GAAR provisions were first referred to under the Draft Direct Tax Code) will be grandfathered.
- There will be a monetary threshold of INR 30 million of tax benefit, in order to invoke the provisions of GAAR. The objective is to focus only on such arrangements, which has potential high value tax evasion.
- An arrangement, with the main purpose of obtaining a tax benefit, would be considered as an impermissible avoidance arrangement (IAA). This is a significant shift wherein the scope of applicability of GAAR would be narrowed down only to such arrangements, which have the main purpose of obtaining tax benefit as compared to an arrangement where one of the purposes is to obtain tax benefit. This is in line with international tax practices and also with the object and purpose of the GAAR provisions.
- Where GAAR and Specific Anti Avoidance Rules (SAAR) are both in force, only one of them will apply to a given case and guidelines will be made regarding their applicability.
- GAAR will not apply to FIIs not opting for taxation under the Tax Treaty and also to those non resident investors, who have made investments into such FIIs.
The statement of the Finance Minister clarifying the Government's stand on the GAAR provisions is welcome as it will lay to rest the anxiety and uncertainty surrounding the implementation of GAAR. The decision to defer the implementation of GAAR to 1 April 2016 as well as to grandfather all investments up to 30 August 2010 is extremely positive, as is the stand of the Government to restrict the applicability of GAAR to only those transactions where the main purpose is to avoid taxes.