A number of representations were received against the provisions relating to GAAR. An Expert Committee was constituted by the Government with broad terms of reference including consultation with stakeholders and finalising the GAAR guidelines and a road map for implementation.

A number of countries have provided for General Anti Avoidance Rules (GAAR) in matters relating to taxation. While tax mitigation is recognized, tax avoidance is frowned upon. International literature describes tax avoidance as the legal exploitation of tax laws to one’s own advantage and an arrangement entered into solely or primarily for the purpose of obtaining a tax advantage.

The Finance Ministry has finalized new norms for GAAR. They will come into effect from April 1, 2016. GAAR will not apply to such FIIs that choose not to take any benefit under DTAA. GAAR will also not apply to non-resident investors in FII. Investments made before August 30, 2010, will be grandfathered. A monetary [...]

The Expert Committee has submitted its Final Report on General Anti Avoidance Rules (GAAR) in Income-tax Act, 1961. The Report is very comprehensive and apart from giving an in-depth explanation of what the GAAR provisions are, it also has a number of examples of transactions which would be affected by GAAR. Link to download Full report is given at the bottom of the Article. Gist of Recommendations is as follows :-

The Finance Act, 2012 has inserted certain retrospective amendments in the Incomes Tax Act, 1961. One of them is insertion of explanation 4 and 5 to section 9 (1) (i) with an intent to tax transfer between nonresidents of shares of foreign company deriving value from assets located in India.

General Anti-Avoidance Rules The GAAR (General Anti-Avoidance Rule) provisions have not been put on hold. The Finance Act, 2012 had provided that these provisions shall be effective from the 1st day of April, 2014 and apply to Assessment year 2014-15 onwards.

The Government had constituted an Expert Committee on General Anti Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the GAAR guidelines as well as a roadmap for implementation.

The Standing Committee on Finance has presented its report on Current Economic Situation and Policy Options to Parliament on August 30, 2012. The Committee has inter alia found that the investment climate in the country has suffered serious setback and investors confidence has been hit mainly because of the concerns over the impact of retrospective tax laws and new General Anti Avoidance Rules (GAAR).

The Committee, chaired by Dr. Parthasarathi Shome, has submitted its draft report after analysis of the GAAR provisions and noting the concerns expressed by various shareholders. The draft report has recommended certain amendments in the Income-tax Act, 1961; guidelines to be prescribed under the Income-tax Rules, 1962; circular to clarify GAAR provisions along with illustrations; and other measures to improve tax administration specifically oriented towards GAAR matters.

Clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance to investors. We will take corrective measures wherever necessary. We have recently appointed two Committees, one to examine GAAR legal provisions and guidelines and the other to review taxation of the IT sector and Development Centres. I have also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the Tax Departments and the Assessees concerned. With these measures, and some other measures that we hope to take in the short term, it is our intention to raise the level of investment to 38% of the GDP that was achieved in 2007-08.