The Centre is likely to take a final call on the controversial General Anti Avoidance Rule (GAAR) only by next February. The decision may well be announced by finance minister Arun Jaitley in his next Budget presentation.
“The finance ministry has started holding discussions on the issue but no hurried decision will be taken on the matter. We will study it carefully and come to a fair and appropriate conclusion,” a senior government official who did not wish to be identified told Hindustan Times. “It is not a simple matter and will take some time,” the official added.
According to existing rules, GAAR will come into effect from April 1, 2015.
In a press conference recently, Jaitley said the issue would now be studied in detail. He also said that retrospective tax was a “retrograde idea”, which sent a negative signal to the world at large and resulted in the drying up of investments.
The implementation of GAAR was announced by Pranab Mukherjee in 2012-13 when he was the finance minister. It gives power to the revenue department to invalidate any transaction that has been undertaken to deliberately to avoid tax and was made applicable to those claiming tax benefits of over Rs 3 crore.
Foreign investors in particular are wary that the ambiguous wording of the rules gives tax authorities the power to misuse the law. This is one of the reasons why investments in India have dried up in the last few years.
Following the widespread outcry against GAAR, the UPA government set up a panel headed by economist Parthasarathi Shome, which recommended, among other things, that GAAR be deferred by three years to 2016-17.
After the new NDA government tool charge at the Centre in May, there was widespread hope that GAAR would be abolished. That has not yet happened but Jaitley has said the Narendra Modi-led government will not create fresh liabilities for investors by levying taxes with retrospective effect.