The government has notified the controversial anti-avoidance tax rules, which will be implemented from April 2016 and apply to business arrangements with a tax benefit exceeding Rs. 3 crore.
The General Anti Avoidance Rules (GAAR) provisions will come into force from April 1, 2016, the Central Board of Direct Taxes (CBDT) said in a notification dated September 23.
The GAAR provisions were introduced in the 2012-13 Budget by then Finance Minister Pranab Mukherjee to check tax avoidance and were to have come into effect from April 1, 2014. The proposal generated controversy, with investors apprehensive about harassment by tax authorities.
To soothe the nerves of jittery investors, Finance Minister P Chidambaram in January announced the postponement of the implementation of Chapter 10A of the Income-Tax Act (dealing with GAAR) by two years to April 1, 2016.
According to the notification, the anti-avoidance rule would be applicable to foreign institutional investors that have not taken the benefit of an agreement under Section 90 or Section 90A of the I-T Act or Double Taxation Avoidance Agreement (DTAA).
The provisions would not apply to business arrangements where the "tax benefit in the relevant assessment year arising, in aggregate, to all parties to the arrangement does not exceed a sum of Rs. 3 crore".
"Where a part of an arrangement is declared to be an impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only," the notification said.
Besides, before invoking the GAAR provisions, the assessing officer has to "issue a notice in writing to the assessee seeking objections, if any, to the applicability of provisions of Chapter X-A".
A business arrangement can be termed 'impermissible' if its main purpose is to obtain tax benefit. Under the original GAAR proposals, the anti-tax avoidance provisions could be invoked "if one of the purposes" was to obtain tax benefit.
"Where a part of an arrangement is declared to be an impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only," it said.
The assessing officer has to issue a show-cause notice, with reasons, to invoke GAAR provisions and also has to give an opportunity to the assessee to explain whether an arrangement was "impermissible".
The government's decision to amend the provisions was in response to fears by investors that the tax department, armed with discretionary powers, would crack the whip even in cases where tax avoidance was not the intent.
The notification is broadly in line with recommendations of the committee led by Parthasarathi Shome, which was set up by Prime Minister Manmohan Singh in July last year to address the concerns of investors.
"From the notification, it is apparent that many recommendations of the Shome Committee have been accepted. However, the benefit of grandfathering has been limited - firstly, to investments made before August 1, 2010, and secondly, only for benefit up to March 31, 2015," said Rahul Garg, direct tax leader at PwC India.
The General Anti Avoidance Rules (GAAR) provisions will come into force from April 1, 2016, the Central Board of Direct Taxes (CBDT) said in a notification dated September 23.
The GAAR provisions were introduced in the 2012-13 Budget by then Finance Minister Pranab Mukherjee to check tax avoidance and were to have come into effect from April 1, 2014. The proposal generated controversy, with investors apprehensive about harassment by tax authorities.
To soothe the nerves of jittery investors, Finance Minister P Chidambaram in January announced the postponement of the implementation of Chapter 10A of the Income-Tax Act (dealing with GAAR) by two years to April 1, 2016.
According to the notification, the anti-avoidance rule would be applicable to foreign institutional investors that have not taken the benefit of an agreement under Section 90 or Section 90A of the I-T Act or Double Taxation Avoidance Agreement (DTAA).
The provisions would not apply to business arrangements where the "tax benefit in the relevant assessment year arising, in aggregate, to all parties to the arrangement does not exceed a sum of Rs. 3 crore".
"Where a part of an arrangement is declared to be an impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only," the notification said.
Besides, before invoking the GAAR provisions, the assessing officer has to "issue a notice in writing to the assessee seeking objections, if any, to the applicability of provisions of Chapter X-A".
A business arrangement can be termed 'impermissible' if its main purpose is to obtain tax benefit. Under the original GAAR proposals, the anti-tax avoidance provisions could be invoked "if one of the purposes" was to obtain tax benefit.
"Where a part of an arrangement is declared to be an impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only," it said.
The assessing officer has to issue a show-cause notice, with reasons, to invoke GAAR provisions and also has to give an opportunity to the assessee to explain whether an arrangement was "impermissible".
The government's decision to amend the provisions was in response to fears by investors that the tax department, armed with discretionary powers, would crack the whip even in cases where tax avoidance was not the intent.
The notification is broadly in line with recommendations of the committee led by Parthasarathi Shome, which was set up by Prime Minister Manmohan Singh in July last year to address the concerns of investors.
"From the notification, it is apparent that many recommendations of the Shome Committee have been accepted. However, the benefit of grandfathering has been limited - firstly, to investments made before August 1, 2010, and secondly, only for benefit up to March 31, 2015," said Rahul Garg, direct tax leader at PwC India.
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