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Saturday, 30 June 2012

GAAR Introduced in the Budget 2012-13

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.

  • The Finance Minister proposed to remove the burden of proof entirely from the tax payers and shift it to the revenue department.
  • Local or foreign tax payers will also be able to approach authorities in advance for a ruling on their potential tax liabilities.
  • 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 may31 for formatting the rules and guidelines to implement GAAR provisions.
  • FM proposed to reduce long term capital gains tax on private equity firms on the sole of unlisted securities to 10%, from 20% currently and bring the tax rate in line with what is changed from foreign portfolio investors.
  • The Finance Minister also proposed to cut the withholding tax to 5% from 20% currently on funding through foreign loans for “All businesses”. The budget in mid march had proposed a lower withholding tax for some sectors.
  •  Fm proposed to extend the tax exemption on long –term capital gains related to the sole of unlisted securities in an initial public offering (IPO). The levy of the securities transactions tax would be lowered at the rate of 0.2% on the sole of unlisted securities.
  • Finance Minister Pranab Mukherjee proposed to defer the rollout of GAAR by a year to provide more time to both tax payers and tax office.

The lack of details and the sudden onset of the provisions have been among the factors that have upset foreign investors.

On 28th June night the finance ministry released the guidelines and rules of GAAR.

Guidelines and rules of GAAR:

  • *        On the proposed retrospective amendment in tax rules, 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 which 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 finalized.
  • *        The finance ministry committee stated that non-resident investor of FII ‘s will be exempt from the rules , and also called for monetary threshold from which GAAR will be implemented.
  • *        FII’s not opted 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.
  • *        Investors coming via Mauritius and Singapore may breathe easy as the provisions of the GAAR may not apply to their transactions.
  • *        GAAR may not be involved in case of treaties with some countries where there is Limitation of Benefits(LOB) clause, such as India-Singapore double taxation avoidance agreement.
  • *        The LOB provisions limit the residents, who may be granted treaty benefits and thus prevent treaty shopping practices.
  • *        If you are incurring expenditure in Singapore, we believe you are a genuine resident of that country.
  • *        FII’s such as P-note holders or pooled funds , would not be required to pay any tax in India on capital gains on sole of Indian assets, even if they were routing their investments through low tax jurisdictions to claim treaty benefits.


Stock, BSE, NSE Tips said...

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Irfan said...

Good Info..Thank For Sharing

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