In a bulletin dated 23 September, the Central Board of Direct Taxes set the GAAR launch at the earliest possible date specified by Parthasarathi Shome, head of the government’s Standing Committee on Finance.
The government states that the new rules will apply ‘to business arrangements with a tax benefit exceeding 3 crore’.
However, according to reports in The Economic Times of India, Firstpost and NDTV, the new legislation has been ‘watered down’ since its inception last year, amid protestations from investors.
In the original draft legislation, for example, a scheme could be categorised as impermissible if even one of its purposes was to obtain tax benefit.
In the approved version however, it has been reported investors will only fall foul of the rules if the main purpose of its existence is tax avoidance.
According to the latest bulletin, the rules do not apply on investments made by foreign investors prior to August 2010, which will be ‘grandfathered’.
The bulletin also stated that the GAAR will also not be used against tax-planning schemes delivering a total tax saving below INR30 million (€ 350,000).
The rules also now state that before invoking the rule, the tax officer will have to issue a written notice to the taxpayer inviting objections.
Additionally, if only part of a tax avoidance scheme is declared to be impermissible under the GAAR, the tax authorities will only be able to use the rule to reverse that part of the scheme.
