General Anti Avoidance Rule (GAAR) Provisions Shall Be Effective From Financial Year 2017-18 Onwards: Finance Ministry
Ministry of Finance on Friday clarified that 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 necessary procedures for application of GAAR and conditions under which it shall not apply, have been enumerated in Rules 10U to 10UC of the Income-tax Rules, 1962. The provisions of General Anti Avoidance Rule (GAAR) are contained in Chapter X-A of the Income Tax Act, 1961, states the PIB release issued by the Ministry.
Following Clarifications are also issued.
- 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.
- Grandfathering as per IT Rules will be available to compulsorily convertible instruments, bonus issuances or split / consolidation of holdings in respect of investments made prior to 1st April 2017 in the hands of same investor.
- Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules. However, if a case of avoidance is sufficiently addressed by Limitation of Benefits (LoB) provisions in the tax treaty, there shall not be an occasion to invoke GAAR.
- If at the time of sanctioning an arrangement, the Court has explicitly and adequately considered the tax implications, GAAR will not apply to such an arrangement.
- GAAR will not apply if an arrangement is held as permissible by the Authority for Advance Rulings.
- If an arrangement has been held to be permissible in one year by the PCIT/CIT/Approving Panel and the facts and circumstances remain the same, GAAR will not be invoked for that arrangement in a subsequent year.
- The proposal to apply GAAR will be vetted first by the Principal Commissioner of Income Tax / Commissioner of Income Tax and at the second stage by an Approving Panel headed by a judge of High Court.
- The stakeholders have been assured that adequate procedural safeguards are in place to ensure that GAAR is invoked in a uniform, fair and rational manner.
- 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.
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