Govt defers tax evasion measures by 1 year after furore

New Delhi: In a move that met with the immediate approval of investors, finance minister Pranab Mukherjee on Monday rolled back some of the key tax provisions introduced in this year’s budget.

Mukherjee deferred the implementation of the general anti-avoidance rules for a year besides diluting some of its controversial provisions which had raised wide spread opposition from foreign institutional investors. However, the finance minister did not announce any major changes to the retrospective amendments that were introduced to empower the tax department to tax indirect transfer of shares where the underlying assets are in India. That means the tax department will most likely raise a claim on Vodafone once the Finance Bill is passed.

“I propose to defer the applicability of the GAAR provisions by one year. The GAAR provisions will now apply to income of Financial Year 2013-14 and subsequent years,” Mukherjee said in his opening remarks in the Lok Sabha.

Some of the changes in the GAAR provisions include shifting the onus of proof from the taxpayer to the tax department and introduction of an independent member in the GAAR panel of the level of joint secretary or above from the law ministry. Taxpayers have also been given the option of approaching the Authority for Advance Ruling (AAR) for a ruling as to whether an arrangement to be undertaken by them is permissible or not under the GAAR provisions.

Bharatiya Janata Party leader Yashwant Sinha welcomed the dilution of the GAAR provisions according to the recommendations of the standing committee. “It is good that you have decided to include an independent member in the GAAR panel. But it should not be a law ministry official. The member should truly be independent,” he said. “In fact, it should be one chief commissioner from the tax department and two independent members.”

Though Mukherjee also provided some clarification of the retrospective tax amendments introduced in the budget, analysts point out that this won’t help Vodafone.

“I would like to confirm that clarificatory amendments do not override the provisions of Double Taxation Avoidance Agreement (DTAA) which India has with 82 countries. It would impact those cases where the transaction has been routed through low-tax or no-tax countries with whom India does not have a DTAA”, Mukherjee said. “The retrospective clarificatory amendments now under consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalized”.

The finance minister also reduced the long-term capital gain arising from sale of unlisted securities by private equity investors to 10% from 20%.

The government will also withdraw the levy on all precious metal jewellery, branded or unbranded. The finance ministry has also diluted the proposed amendments to the customs Act which sought to make non-bailable offenses punishable by a jail term of at least three years.

“Only serious offences under the customs law involving prohibited goods or duty evasion exceeding Rs 50 lakh, shall be cognizable. However, all these offences shall be bailable,” Mukherjee said.

Mukherjee also announced the withdrawal of tax deduction at source on transfer of immovable property and raised the threshold of collection of tax at source from jewelers for all cash transactions to Rs 5 lakh from Rs 2 lakh.

The markets reacted positively. Trading in the red, they rose soon after the announcements. BSE’s benchmark Sensex rose 0.48% to 16,912.71 at the end of trading on Monday. The 50-share NSE index added 0.54% to 5,114.15 points.