Panel for postponement of GAAR by 3 years

The expert committee on General Anti Avoidance Rules (GAAR) on September 1 recommended postponement of the controversial tax provision by three years and abolition of capital gains tax on transfer of securities.

As a step towards reassuring global investors, the Committee in its draft report, suggested that GAAR provisions should not be invoked to examine the genuineness of the residency of entities in Mauritius.

Mauritius is the most preferred route for foreign investments because of the liberal taxation regime in the island country. India has a double taxation avoidance treaty with Mauritius.

The Committee, headed by Parthasarathi Shome, has recommended that GARR be applicable only if the monetary threshold of tax benefit is Rs 3 crore and more.

The draft report, which was submitted to the Finance Ministry, has also sought comments from the stake holders by September 15. The Shome Committee was set up by Prime Minister Manmohan Singh to address the concerns of foreign investors.

Meanwhile, the Finance Ministry has also expanded the scope of the terms of reference of the committee to include all non-resident tax payers instead of only FIIs.

The draft report of the Shome committee said: ”...GAAR should be deferred for 3 years. But the year, 2016-17, should be announced now. In effect, therefore, GAAR would apply from assessment year 2017-18. Pre-announcement is a common practice internationally, in today’s global environment of freely flowing capital”.

In view of wide-spread concerns by foreign investors, the government had earlier postponed implementation of GAAR, which was introduced by the then Finance Minister Pranab Mukherjee in his Budget for 2012-13 to check tax evasion.