GAAR alert! Modi government on track to implement it from April 1, 2017

The Narendra Modi government today issued clarification that GAAR, that is General Anti-Avoidance Rule, will come into effect from April 1, 2017. The General Anti Avoidance Rule (GAAR) provisions shall be effective from the Assessment Year 2018-19 onwards, i.e. Financial Year 2017-18 onwards, the Finance Ministry said in a press release.

It has been clarified that if the jurisdiction of FPI is finalized based on non-tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply. GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction, the Finance Ministry added.

Government is committed to provide certainty and clarity in tax rules. Further clarifications, if any, on doubts of stakeholders regarding GAAR implementation, will also be provided, the ministry said in an attempt to pacify investors.

Speaking to FE Online earlier, Naveen Aggarwal of KPMG India had said that the government should definitely defer GAAR by atleast a year. “The Finance Act, 2012 introduced GAAR in the Income-tax Act, 1961, which is well intended and should be implemented,” he said adding that the government is on the run and has amended treaties with Mauritius and Singapore so that corporates don’t avoid tax. However, he said that corporates are worried about business transactions post implementation of GAAR.