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What is General Anti Avoidance Rules?
The GAAR is slated to kick in from 2017-18 (assessment year 2018-19). At the same time, GAAR would apply to any arrangement, irrespective of the date it has been entered into, if tax benefit is obtained from such arrangement on or after April 1, 2017 against the earlier cut off date of April 1, 2015.
Ruling out any retrospective applicability of the General Anti Avoidance Rules (GAAR), the finance ministry has said that these would not apply to income earned or received by any person from transfer of investments made before April 1, 2017. As per an earlier draft, GAAR was to apply for income earned from investments made after August 30, 2010.
The GAAR is slated to kick in from 2017-18 (assessment year 2018-19). At the same time, GAAR would apply to any arrangement, irrespective of the date it has been entered into, if tax benefit is obtained from such arrangement on or after April 1, 2017 against the earlier cut off date of April 1, 2015.
As per the revised treaty, companies routing funds into India through Mauritius after March 31, 2017, will have to pay short-term capital gains tax at half the rate prevailing during the two-year transition period. The levy is currently at 15 per cent. The full rate will kick in from April 1, 2019. The industry has been demanding that the tax department come out with specific guidance note on when this provision will get triggered.
General anti-avoidance rule (GAAR) is an anti-tax avoidance regulation of India. Originally proposed in the Direct taxes code 2010,are targeted at arrangement or transactions made specifically to avoid taxes. The regulation allows tax officials to deny tax benefits, if a deal is found without any commercial purpose other than tax avoidance. It allows tax officials to target participatory notes.
Under GAAR, the investor has to prove that the participatory note was not set to avoid taxes. It also allows officials to deny double taxation avoidance benefits, if deals made in tax havens like Mauritius were found to be avoiding taxes. GAAR was introduced in his 2012-13 Budget speech by the then Finance Minister, Pranab Mukherjee, with a view to checking tax evasion and avoidance.
However, its implementation was repeatedly postponed because of apprehensions expressed by foreign investors. There have been fears that through the use of GAAR, the government may try to tax P-Notes as indirect investments, which could attract a tax rate of up to 15 per cent. To avoid tax altogether under GAAR, an investor may have to prove that P-Notes were not set up specifically to avoid paying taxes.
