Budget 2017: Here come new tax rules you don’t care about but which affect you greatly | union-budget | Hindustan Times
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Budget 2017: Here come new tax rules you don’t care about but which affect you greatly

The government is unlikely to defer the implementation of General Anti Avoidance Rules (GAAR) from April 2017, despite strong pitches from the industry against it, say top sources. Indian industry has petitioned hard before the government to further defer GAAR. “Despite the strong representation the government is unlikely to defer GAAR beyond April 2017,” said a top official in finance ministry.

union budget Updated: Jan 23, 2017 12:57 IST
Suchetana Ray
Finance minister Arun Jaitley is unlikely to defer GAAR.
Finance minister Arun Jaitley is unlikely to defer GAAR.(PTI)

The government is unlikely to defer the implementation of General Anti Avoidance Rules (GAAR) from April 2017, despite strong pitches from the industry against it, say top sources.

GAAR contains provisions to stop misuse of treaties that India has with other countries for tax avoidance. These are rules targeted at businesses that are structured solely for avoiding tax in India, such as routing investment into the country through tax havens. Transactions that fail the GAAR test will be subject to tax.

First introduced by Pranab Mukherjee as finance minister in the budget of 2012, GAAR caused immense furore among foreign investors in India, leading the government to defer its implementation till April 2015.

When it was finance minister Arun Jaitley’s turn to decide on the fate of GAAR in 2015, he further deferred it to April 2017 to give industry as well as the tax department more time to adjust to this sophisticated tax regime. Budget 2017 is unlikely to defer it further.

Now with April 2017 upon them, Indian industry has petitioned hard before the government to further defer GAAR. “Despite the strong representation the government is unlikely to defer GAAR beyond April 2017,” said a top official in finance ministry.

He explained that by amending its tax treaty with Mauritius, India has anyway taken away the tax benefit of routing investments through that country. “We cannot continue to indefinitely postpone GAAR,” the official quoted above said.

Sources say that industry representatives have requested finance ministry to defer GAAR in light of adjustments needed to tackle demonetisation and GST.

Experts say that the fear against GAAR is that these rules give powers to authorities that could lead to harassment in the hands of the tax department. This will in turn lead to higher disputes between investors and the taxman.

“GAAR has been deferred twice. Should it be deferred again to increase preparedness of industry and the tax department?” questioned Girish Vanvari, national leader tax for KPMG India.