No retro tax effect, GAAR likely to be deferred again

  • Timsy Jaipuria, Hindustan Times, New Delhi
  • Updated: Feb 03, 2015 23:54 IST

The government is planning to defer the implementation of General Anti Avoidance Rules (GAAR), a controversial system that seeks to empower taxmen to clampdown on deals and income suspected to have been structured to avoid paying taxes.

Besides, the government is also examining options to hammer out a solution on the thorny issue of “retrospective taxes” to soothe investors’ frayed nerves.

Finance minister Arun Jaitley could announce these proposals in the budget, sources told HT.

“The finance minister has himself chaired a few rounds of meetings with senior ministry officials and experts to get a fair sense of the challenges posed by these two tax laws and their consequences. There are definitely some second thoughts,” a source said.

Prime Minister Narendra Modi vowed to eliminate red-tape to make India a favoured investment destination with a predictable tax system and easier rules.

The GAAR provisions, first proposed in budget 2012-13, had triggered howls of protest from global and domestic business leaders due to its potential impact on almost anybody and everybody.

For instance, many firms, experts said, may be forced to restructure salaries of employees if taxmen conclude that these were structured only to avoid taxes.

There was also a lurking fear among foreign institutional investors (FIIs) who were worried that they will have to pay to capital gains tax for their investments in Indian stock markets.

The previous UPA government had deferred its implementation till 2016.

Last week, the Cabinet decided not to appeal a Bombay High Court ruling in favour of Vodafone in an `3,200-crore tax dispute over a share transaction involving a local subsidiary.

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