GAAR in India has seen many bowls of controversies ever since it was
proposed in the DTC Bill in 2010. To put such issues at rest the Govt had set up
Shome Panel, which made several recommendations. With little modifications the
Finance Minister has accepted most of the Committee's recommendations. They are
as follows:
• An
arrangement, the main purpose of which is to obtain a tax benefit
, would be considered as an impermissible avoidance arrangement. The
current provision prescribing that it should be “the main purpose or one of the
main purposes” will be amended accordingly.
•
The assessing officer will be required to issue a show cause notice
, containing reasons, to the assessee before invoking
the provisions of Chapter X-A.
•
The assessee shall have an opportunity to prove that the
arrangement is not an impermissible avoidance arrangement.
•
The two separate definitions in the current provisions, namely, ‘associated
person' and ‘connected person' will be combined and there will be only
one inclusive provision defining a ‘connected person' .
•
The Approving Panel shall consist of a Chairperson who is or
has been a Judge of a High Court; one Member of the Indian Revenue Service not
below the rank of Chief Commissioner of Income-tax; and one Member who shall be
an academic or scholar having special knowledge of matters such as direct taxes,
business accounts and international trade practices. The current provision that
the Approving Panel shall consist of not less than three members being
Income-tax authorities or officers of the Indian Legal Service will be
substituted.
•
The Approving Panel may have regard to the period or time for
which the arrangement had existed; the fact of payment of taxes by the assessee;
and the fact that an exit route was provided by the arrangement. Such
factors may be relevant but not sufficient to determine whether the
arrangement is an impermissible avoidance arrangement.
•
The directions issued by the Approving Panel shall be
binding on the assessee as well as the Income-tax authorities. The
current provision that it shall be binding only on the Income-tax authorities
will be modified accordingly.
•
While determining whether an arrangement is an impermissible avoidance
arrangement, it will be ensured that the same income is not taxed twice
in the hands of the same tax payer in the same year or in different
assessment years.
•
Investments made before August 30, 2010, the date of
introduction of the Direct Taxes Code, Bill, 2010, will be
grandfathered.
•
GAAR will not apply to such FIIs that choose not to take any benefit
under an agreement under section 90 or section 90A of the Income-tax
Act, 1961. GAAR will also not apply to non-resident investors in FIIs
.
• A
monetary threshold of Rs. 3 crore of tax benefit in the
arrangement will be provided in order to attract the provisions of GAAR.
•
Where a part of the arrangement is an impermissible avoidance arrangement, GAAR
will be restricted to the tax consequence of that part which is
impermissible and not to the whole arrangement.
•
Where GAAR and SAAR are both in force, only one of them will apply
to a given case, and guidelines will be made regarding the
applicability of one or the other.
•
Statutory forms will be prescribed for the different
authorities to exercise their powers under section 144BA.
•
Time limits will be provided for action by the various
authorities under GAAR.
•
Section 245N(a)(iv) that provides for an advance ruling by the Authority
for Advance Rulings (AAR) whether an arrangement is an impermissible
avoidance arrangement will be retained and the administration of the AAR will be
strengthened.
•
The tax auditor will be required to report any tax avoidance
arrangement.
Further, having considered all the circumstances and relevant factors,
Government has also decided that the provisions of Chapter X-A will come
into force with effect from April 1, 2016 (as against the current
provision of April 1, 2014).
The
final report of the Expert Committee has been put on the website of the Ministry
of Finance today.
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