Anti-avoidance tax rule to kick in from April 20171 min read . Updated: 08 Jan 2017, 10:12 PM IST
Experts say through the use of GAAR, government may try to tax p-notes as indirect investments, which could attract a tax rate of up to 15%
New Delhi: General anti-avoidance rule (GAAR) will kick in from 1 April 2017, the tax department said on Sunday.
In its 2016 year-end review, the central board of direct taxes (CBDT), which is the apex policy making body of the income tax (I-T) department, listed its major achievements. “Major achievements of CBDT in the current financial year 2016-17 so far include, among others, enactment of The Benami Transactions (Prohibition) Amendment Act, 2016, implementation of The Direct Tax Dispute Resolution Scheme, 2016 and of GAAR from assessment year 2018-19," an official statement said.
In May last year, CBDT had started consultation with stakeholders asking them to give their views where they require clarity before GAAR is implemented.
GAAR was part of the 2012-13 budget speech of the then finance minister Pranab Mukherjee to check tax evasion and avoidance. However, its implementation was repeatedly postponed because of the apprehensions expressed by foreign investors.
GAAR, which was originally to be implemented from 1 April 2014, will now come into effect from 1 April 2017 (assessment year 2018-19). It contains provision allowing the government to prospectively tax overseas deals involving local assets.
There have been fears that the government may use it to target participatory notes (p-notes). Through the use of GAAR, government may try to tax p-notes as indirect investments, which could attract a tax rate of up to 15%, experts say.
To avoid tax altogether under GAAR, an investor may have to prove that p-notes were not set up specifically to avoid paying taxes.
Finance minister Arun Jaitley had in his budget speech in 2015, deferred GAAR implementation by two years and also said that the investments made up to 31 March 2017 shall not be subjected to GAAR, which was to be applied on those claiming tax benefit of over Rs3 crore.