What is GAAR

By: Do you know | Views: 1680 | Date: 29-Jun-2012

India has deferred by a year the rollout of measures to crack down on tax evasion, which had sparked an outcry among foreign investors, but has yet to provide clear guidelines on the proposals.


India has deferred by a year the rollout of measures to crack down on tax evasion, which had sparked an outcry among foreign investors, but has yet to provide clear guidelines on the proposals.

Here are some quick facts that pertain to markets about the proposed changes and clarifications on GAAR announced by Finance Minister Pranab Mukherjee. Prime Minister Manmohan Singh has now taken additional charge of the ministry after Pranab Mukherjee resigned to take part in the Presidential elections.

* The General Anti Avoidance Rule, or GAAR, was proposed in mid-March as part of the budget for fiscal 2013.

* GAAR aims to target tax evaders, partly by stopping Indian companies and investors from routing investments through Mauritius or other tax havens for the sole purpose of avoiding taxes.

* However, the ambiguous language, the lack of details, and the sudden onset of the provisions have been among the factors that have upset foreign investors.

* Finance Minister Pranab Mukherjee on Monday proposed to defer the rollout of GAAR by a year to the financial year that begins in April 2013 to "provide more time" to both taxpayers and the tax office "to address all related issues".

* The finance minister proposed to remove the onus of proof entirely from the taxpayer and shift it to the revenue departments.

* A local or foreign taxpayer will also be able to approach authorities in advance for a ruling on their potential tax liabilities, Mukherjee proposed.

* An independent member would be in the GAAR approving panel, while one member would be an officer of the level of Joint Secretary, or above, from the Ministry of Law.

* A committee would be constituted under the Chairmanship of the Director General of Income Tax, with the task of providing recommendations by May 31 for formulating the rules and guidelines to implement GAAR provisions.

* On the proposed retrospective amendment in tax rules, Mukherjee said the changes will not override the provisions of double-tax avoidance treaties India has with 82 countries.

* The retroactive changes will only impact those cases where a deal has been routed through low-tax and no-tax countries with whom India does not have tax treaties.

* The proposed retrospective changes in tax rules will not be used to reopen cases where assessment orders have already been finalised, Mukherjee said.

* Mukherjee proposed to reduce long-term capital gains tax on private equity firms on the sale of unlisted securities to 10 percent, from 20 per cent currently, and bring the tax rate in line with what is charged from foreign portfolio investors.

* The finance minister also proposed to cut the withholding tax to 5 per cent from 20 per cent currently on funding through foreign loans for "all businesses." The budget in mid-March had proposed a lower withholding tax for some sectors.

* Mukherjee proposed to extend the tax exemption on long-term capital gains related to the sale of unlisted securities in an initial public offering. The levy of the Securities Transaction Tax would be levied at the rate of 0.2 per cent on the sales of unlisted securities.

* Finance Ministry sources told  that there is no indication of GAAR being dropped, as it will mean changes in the Finance Act.

* The ministry put out a comprehensive draft of new guidelines for General Anti-Avoidance Rules on Thursday. Releasing the draft guidelines, the finance ministry committee stated that non-resident investors of FIIs will be exempt from the rules, and also called for a monetary threshold from which GAAR will be implemented.

* According to the draft, GAAR will come into effect from April 1 2013. According to the guidelines, FII not opting for treaty benefits and ready to pay taxes will not come under GAAR, but those who do opt for dual taxation avoidance agreements will come under its purview.

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