The GAAR provisions were introduced in the ITA in 2012 and were slated for implementation from April 1, 2013. Owing to ambiguities in its scope and application, lack of safeguards and possibility of misuse by tax authorities, GAAR had been widely criticized. With a view to address the issues raised, the Government had appointed a Committee for consultation with stakeholders and the review of the GAAR provisions. Some of the recommendations of the Committee had been accepted and the GAAR provisions were amended in the 2013 Budget. The 2013 Budget deferred the implementation of GAAR for 2 years and made it applicable from April 1, 2015. However, in spite of significant changes to the provisions, GAAR still empowers the Revenue with considerable discretion in taxing ‘impermissible avoidance arrangements’.
This year?s Budget has reviewed the GAAR provisions and has deferred GAAR further by 2 years i.e. GAAR will now be applicable from April 1, 2017. Further, it has also been proposed to grandfather investments made upto March 31, 2017 and make GAAR applicable prospectively, i.e. to investments made only after April 1, 2017. The Finance Minister has stated that considering that investor sentiment has turned positive and with a view to accelerate this momentum, it would be prudent to defer the implementation of GAAR. Further, the memorandum to the Finance Bill states that keeping in mind that the Base Erosion and Profit Shifting (BEPS) project under Organization of Economic Cooperation and Development is continuing and India is an active participant in the project, it would be proper that GAAR provisions are implemented as part of a comprehensive regime to deal with BEPS and aggressive tax avoidance.
The deferral of the GAAR provisions is definitely a huge positive. Investors have been worried about the scope of the GAAR provisions and concerns have been raised on how they would be implemented. A re-look at the scope of the provisions will definitely be welcomed by the investment community and it is hoped that when revised provisions are introduced, they will be in line with global practices.
About the author
This article is written by Nishith M. Desai