The government has released draft guidelines for the implementation of the general anti-avoidance rules (GAAR), which were introduced by the Finance Act, 2012. The rules are expected to take effect from 1 April 2013.
The primary objective of the guidelines is to prevent tax authorities from indiscriminately applying GAAR provisions, particularly in the wake of rising investor concerns. Although certain safeguards have been prescribed, the guidelines and the examples they provide are couched in wide terms that do not recognize commercial nuances. Investors fear that a cookie cutter application of GAAR provisions by tax authorities will create problems. Manmohan Singh, who recently was finance minister as well as prime minister, has sought to allay these fears, so readers are advised to watch this space for future updates.
Key safeguards
Threshold: GAAR will only apply if the benefit to a taxpayer through an investment arrangement is above a prescribed monetary limit in a given year. The threshold is yet to be prescribed.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
