General Anti Avoidance Rule (GAAR)

Articles

Important Topic for General Studies Mains - 2012

Recently, The expert committee on GAAR headed by Parthasarathi Shome to address the concerns for foreign and domestic investors has recommended the postponement of the controversial tax provision by three years till 2016-17 along with the removal of capital gains tax on transfer of securities.

Coming up as an assurance to the foreign institutional investors (flls) through the Maturitius route, the committee suggested that the GAAR provisions should not be invoked to examine the genuineness of the foreign investor entities. Furthermore, set up mainly to bring about tax clarity and address the concern of foreign investors, the panel has been told to look into the various issues pertaining to all non-resident tax payers.

Some of the recommendations made by the committee are as follows:

GAAR should be applicable only if the threshold of tax benefit is rs. 3 crore and above.

The postponement of GAAR has been recommended on administrative ground, considering it as an extremely advanced instrument of tax administration for which intensive training of tax officers is required, said the panel.

It should not be applied to check residential status of investors in Mauritius.

It was recommended that the government should abolish the tax on gains arising from the transfer of listed securities, whether in the nature of capital gains or business income to both residents as well as non-residents.

In order to make the tax proposal natural, it is recommended to increase the rate of Securities Transaction Tax (STT).

GAAR should be applied only in the case of abusive, contrived and artificial arrangements and for the purpose, amendment in the income tax act has been suggested.

Setting up of an approving panel consisting of 5 members including a retired judge Of the High Court, two members from outside the government and persons of eminence drawn from the fields of accountancy, economics or business with the knowledge of income-tax and two members of the rank of Chief Commissioners of income tax or one Chief Commissioner & one Commissioner has been recommended.

Important Facts About GAAR

Adopted by countries like Australia, Canada, China, Singapore and almost 17 other countries. GAAR is meant for focusing on tax evaders, by preventing Indian companies and investors from routing investment through Mauritius or other tax Havens for the motive of avoidance . Even in its current format ,the individuals were facing the fear of coming under its preview. While the main cause of criticism was that it could have provided tax authorities with a lot of discretion and authority, which was supposed to be misused at times.

Some Important Terms

Round Tripping: It refers to the routing of funds/investments by a resident of one country through another back again to his own country.

Double Tax Avoidance Agreement (DTAA) : DTAA is a kind of bilateral treaty between countries to prevent their companies from paying taxes in their country as well as in the country where they are doing business. As of now, India has signed DTAA with 82 countries.

Importance from the examination point of view:

GAAR - SHORT NOTES
FEATURES
ISSUES OF CONCERN AMONG THE INVESTORS
TAX HAVEN
RECOMMENDATION OF THE PANEL
ROUND TRIPPING
DTAA
RECENT UPDATE ABOUT THE FIIS

Back to All Articles