General Anti-Avoidance Rules, or GAAR, will be invoked on companies based out of tax havens with which India has a double tax avoidance treaty, such as Mauritius, should they wish to take benefit of such a treaty, the Central Board of Direct Taxes (CBDT) has clarified.
“Where an FII chooses to take a treaty benefit, GAAR provisions may be invoked in the case of the FII, but would not in any case be invoked in the case of the non-resident investors of the FII,” it said in draft guidelines issued on Thursday.
“Where a FII chooses not to take any benefit under an agreement entered into by India under section 90 or 90A of the Act and subjects itself to tax in accordance with the domestic law provisions, then, the provisions of Chapter X-A shall not apply to such FII or to the non-resident investors of the FII,” it said.
In either case, the onus for proving the liability to tax will be on the taxman.
The ministry also made it clear that the GAAR provisions will only be applicable with prospective effect, from the next fiscal.
“Certain apprehensions have been raised regarding the retrospective/ prospective operation of the GAAR provisions. It may therefore be clarified that the provisions of GAAR will apply to the income accruing or arising to the taxpayers on or after April 1, 2013,” the circular said.
That’s a major breather for Vodafone, which was expected to be in the loop once again.
Also, in a breather for small tax payers, the government said monetary threshold is a must for invoking GAAR provisions.
The apex body for administration of taxes in May had formed a six-member committee to draft guidelines for enforcing GAAR, introduced in the Union Budget to crack down on tax cheats.
“The committee feels that in order to avoid the indiscriminate application of the GAAR provisions and to provide relief to small taxpayers, there should be monetary threshold for invoking the GAAR provisions,” it said.
BDT has also called for setting up an approving panel of not less than three members that will approve cases that may or may not come under the ambit of GAAR. Of these panels, one will be situated in Delhi.
Prime Minister Manmohan Singh also said instances will be provided where GAAR will be invoked so as to clear the air.
Also see: GAAR guidelines, what's new