New Delhi, Sept. 26: The government has notified anti-avoidance tax rules GAAR that will be effective from April 1, 2016. The notification was made on September 23, just two days ahead of Prime Minister Manmohan Singh’s visit to the US.
The provisions of the General Anti-Avoidance Rules (GAAR) will apply to entities getting a tax benefit of at least Rs 3 crore, the Central Board of Direct Taxes said in the notification.
In the US, Singh is expected to face protests from business entities over India’s perceived anti-American stance on matters of taxation, intellectual property rules and market access.
The notification is seen as a way to assure the US and foreign firms that they can continue to do business by taking advantage of tax havens such as Mauritius without being impacted by GAAR.
In its original form, GAAR was seen as draconian and had scared away millions of dollars in investments from the Indian stock market after it was proposed last year.
A committee under Parthasarathi Shome reviewed the rules and diluted provisions were made public in January.
Analysts expect the notification to pep up the bourses and reassure long-term investors.
According to the notification, the GAAR provisions will also apply to foreign institutional investors (FIIs) that have claimed benefits under any double taxation avoidance agreement.
Investments by a non-resident by way of offshore derivative instruments, or P-Notes, through the FIIs, will not be covered by GAAR.
Investments made before August 30, 2010, will not be scrutinised under GAAR, the notification said.
Before invoking the provisions, the assessing officer has to “issue a notice in writing to the assessee seeking objections, if any, to the applicability of provisions”.
“Stock markets will have a lot to cheer as the FIIs, which do not seek to avail themselves of the treaty benefits, will not be subjected to GAAR. Similarly, investment in participatory notes will not be subject to GAAR,” Deloitte Haskins & Sells Partner N.C. Hegde said.