Its official. Aiming to provide some relief to foreign investors while improving investor sentiment on inflows into India, finance minister P Chidambaram on Thursday said the modified version of the General Anti Avoidance Rules (GAAR) — originally announced in the budget last year — would come
into effect only from April 2016.
The proposal was made to check tax avoidance by using loopholes in taxation laws, but alarmed foreign investors who said the sudden change of regime was not fair. The government later appointed a committee headed by economist Parthasarathi Shome to review the issue.
"After careful consideration of the report, the government announced certain decisions on January 14, 2013 which were widely welcomed. I propose to incorporate those decisions in the Income-Tax Act," Chidambaram said.
However, the minister kept the option open for cracking down on tax avoidance in some cases. Such cases would be taxed if it is so determined though a stringent procedure, the ministry said. The assessment — whether the arrangement is primarily to obtain tax benefits — would be done by an assessing officer and an approving panel headed by a judge.
Chidambaram had earlier said investments made before August 30, 2010, would not attract the provisions of GAAR.
GAAR was introduced by then finance minister Pranab Mukherjee to address the issue of tax avoidance by overseas investors.
The proposal generated controversy and dampened investor sentiment, further denting economic growth amid a global economic crisis and a local industrial downturn.