GAAR Put off, But not Put Away

India Inc can breathe a sigh of relief,as the finance minister has stuck to his commitment to defer the introduction of the General Anti-Avoidance Rules (GAAR) to the financial year 2015-16.However,some of the suggestions made by Parthasarathi Shome-led expert group have been incorporated.

For instance,a transaction will fall foul of GAAR only if the main purpose of an arrangement is to obtain a tax benefit.This is a significant dilution from the existing provisions of the Act which provides that even if one of the main purposes of a transaction is to obtain a tax benefit,the entire transaction would come within the GAAR ambit.

Second,various factors such as period of time for which arrangement has existed,payment of tax by the assessee,existence of an exit route in the structure are aspects that would be considered to determine whether or not a transaction can be regarded as impressible and attract GAAR.An independent approving panel is also proposed to be set up.

The proposals may still fall short of expectations inasmuch as GAAR would override Tax Treaties.Ambiguity also exists in cases where Special Anti Avoidance Rules (such as Limitation of Benefit clauses) exist in tax treaties, states Pranav Sayta,partner Ernst & Young.

Shifting of onus back on the taxpayer will increase grievance as an arrangement shall be presumed to have been entered into for tax benefit unless proved otherwise by the taxpayer.Further,the grandfathering provisions announced by the FM have not been incorporated in the Bill, points out Shefali Goradia,partner,BMR Advisors.These gaps will result in litigation.

However,tax experts are hopeful that perhaps when the GAAR provisions come into force the Income tax Rules will adequately address some of the gaps.

Times of India, New Delhi, 01-03-2013