India Puts Off GAAR Till 2016

January 15, 2013 Taxation in India

Photo by Shamsul Liza
NEW DELHI – India has refined its proposed rules to help against tax evasion and has also delayed the implementation of the new regulations by another two years.

India is looking to boost the confidence of foreign investors doing business in the country, with the Finance Minister Sanjiv Shankaran announcing on January 14th that the implementation of the country’s controversial General Anti-Avoidance Rules (GAAR) will be deferred by two years until April 1st 2016.

Alongside the deferral, the Minister also announced that the GAAR rules would be tweaked in order to safeguard investor interests, with new measures being invoked only when tax authorities are convinced that the foreign investors undertook the transaction with the sole purpose of evading taxes in India.

Further, the Minister added that before the GAAR rules can be used, the allegations leveled by the tax authorities must be presented in front of an independent panel of legal experts and seasoned tax professionalism, who will decide if the rules should be applied.

The deferral of the GAAR and the accompanying amendments are intended to ease the concerns which were previously voiced by foreign investors, and to insure that the country does not see a decrease in the amount of overseas business coming in to India.

The GAAR rules were first proposed two years ago and were intended to prevent foreign investors operating in India from routing their profits to offshore tax havens in order to aggressively minimize the tax obligations they owe on their local profits.

The proposed rules were instantly met with significant controversy and opposition, especially because the rules could be applied retroactively.