On the face of it, the amendments proposed to the general anti-avoidance rules (GAAR) announced last year seem to be another sop to woo foreign investors. It is actually, if you read the fine print, much more.
For one, it has upheld the spirit of GAAR that requires the authorities to walk the fine line between tax evasion and tax avoidance—the former is illegal, while the latter is not. So if a transaction complies with the GAAR rules, it will be deemed fair; every effort to avoid tax will not invite a call from the tax man.
However, the tax authorities have also sent out a tough message by saying that all investments made after August 2010 will come under GAAR—contrary to the expert group’s proposal. And those who rushed through with their investments to avoid taxes may be in for a nasty surprise as tax returns can be reopened going back six years.