GAAR Execution May Be Postponed to 2016-17

A specialist group on tax laws recommended that the Indian government postpone execution of the General Anti-Avoidance Rules (GAAR) until financial year 2016-17 and eliminate capital gains tax on securities transfers to ensure investment and capital flows.
The group, appointed by the Prime Minister of India, suggested a series of steps which are likely to alleviate investor concerns in a draft report to the Ministry of Finance.

“GAAR should be deferred for three years. But the year 2016-17 should be announced now. In effect, therefore, GAAR would apply from assessment year 2017-18. Pre-announcement is a common practice internationally in today’s global environment of freely flowing capital,” the group said in the draft report.

The group, headed by Mr. Parthasarathi Shome, called GAAR “an enormously advanced instrument of tax administration. One of avoidance, rather than for revenue generation” which requires an exhaustive training of tax officers who would focus on the finer aspects of international taxation. It suggested a section to defend present investments and provide protection for transactions routed through Mauritiuswith which India has a double taxation avoidance treaty and is considered a tax haven.

For the present investments, the draft report stated: “All investments (though not arrangements) made by a resident or non-resident and existing on the date of commencement of the GAAR provisions should not be taxed as per GAAR provisions.”

The Ministry of Finance also extended the range of the terms of reference of the committee to include all non-resident tax payers instead of only FIIs. The draft report has suggested certain alterations in the Income Tax Act, 1961.

• Guidelines to be prescribed under the Income Tax Rules, 1962
• Circular to clarify GAAR provisions along with illustrations
• Other measures to improve tax administration specifically oriented towards GAAR matters

The suggestions from the stakeholders are invited by September 15, and final report submissions will be by the month’send.


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