India Delays Tax Changes

May 8, 2012 Taxation in India

Pranab Mukherjee announces tax delaysNEW DELHI – India will aim to boost the confidence of international entrepreneurs investing in India by delaying the implementation of new anti-avoidance rules and reducing withholding taxes and excise duties.

In a presentation given to Parliament on May 7th the Finance Minister of India Pranab Mukherjee announced a one year delay to the implementation of the General Anti-Avoidance Rule (GAAR), and the cancellation of a plan to increase excise duties, which was scheduled to be instated this year.

The Minister explained that the delay to the implementation of GAAR is intended to give Indian taxpayers and tax authorities more time to prepare for the new rules, and to sort out any outstanding issues and concerns regarding the new regulations. He added that a special government panel would release a new report by the end of the month, recommending further amendments and updates to the proposed GAAR rules.

The GAAR is aimed at providing Indian tax authorities with greater powers to investigate and intervene with transactions which fall under the scope of Double Taxation Agreements signed by India, and which are deemed to be entered into for the sole purpose of obtaining tax benefits in India.

However, according to the opinions of some international entrepreneurs presented in the Indian media, the GAAR will introduce significant uncertainty for investors who enter into transaction with Indian entities.

In an effort to further boost investment into the country, India will also cut withholding taxes on interest repayments on foreign borrowings to 5 percent.

Pranab Mukherjee also announced that the government would roll back a previously instated 1 percent increase to excise duties on purchases jewellery and decorative precious metals.

The previously proposed 1 percent increase to excise duties on property transactions were also withdrawn.

Photo by World Economic Forum