On 7 May, Indian finance minister Pranab Mukherjee announced that the Indian government would modify various tax proposals that have caused significant uncertainty for foreign investors in India, particularly private equity investors. “The proposed modifications, while preliminary, are encouraging,” lawyers at Goodwin Procter said in a client alert.
The government had planned to implement general anti-avoidance rules (GAAR) retroactively from 1 April this year. Now, the proposed rules are expected to be published by the end of this month and implemented on 1 April 2013.
“Tax professionals predicted that GAAR could be used to impose tax on transactions that are otherwise structured in a tax-free manner and would provide broad discretion to tax officers,” said the Goodwin Procter lawyers. “The fact that the rules will be spelled out and investors will have the opportunity to consider these rules in structuring future transactions is extremely helpful.”
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