New Delhi, July 9: The General Anti-Avoidance Rules (GAAR) will probably introduce a provision for “grandfathering” of untaxed income and dilution of some of the stricter, or vague clauses.

Grandfathering refers to the introduction of a clause in a new law or regulation that exempts certain persons or businesses from abiding by it.

A committee set up by the finance ministry to look into the changes in draft GAAR guidelines today met tax professionals and industry representatives.

Sources said the panel had made it clear that GAAR would kick in next year but could be modified to meet industry’s apprehensions.

Tax professionals said the government had agreed to “grandfather” untaxed incomes from GAAR, meaning income made before April 1, 2013, will not be taxed. The number and types of cases where GAAR will be applicable will be reduced. An earlier draft had come up with around 21 illustrations.

GAAR and other changes in income tax law have cast doubt on who or which firms are eligible to claim residency status in a tax haven. Officials said eligibility conditions could be clarified through separate rules and would not in all likelihood be part of the main law.

The officials also said that rules would clearly set limits on discretionary powers which revenue officials would enjoy in enforcing GAAR.

“It would be important if certain terms such as ‘substance’ are defined in a more objective manner and some tests such as expenditure test on the lines of the Singapore treaty is incorporated in the domestic law,” said Punit Shah, partner (tax & regulatory services), KPMG.

The next meeting of the panel, which includes officials of the finance ministry and representatives of FIIs, will be held on August 12 and 13.

Earlier, some industry associations had demanded GAAR to be indefinitely postponed.

The new provisions could allow authorities to declare any business deal to be an “impermissible avoidance arrangement” if part or whole of the deal has been crafted with the intention of obtaining “tax benefits”.