All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

India: Rules for application of general-anti avoidance rules

nayak.jpg

jain.jpg

Rajendra Nayak


Aastha Jain

A General anti-avoidance rule (GAAR) was introduced in the Indian Tax Law (ITL) in 2012 as a broad-based rule giving wide discretionary powers to Indian revenue authorities to invalidate an arrangement, including disregarding application of tax treaties, if an arrangement is treated as an "impermissible avoidance arrangement". GAAR would come in effect from tax year 2015-16. The Central Board of Direct Taxes, the apex administrative authority of direct taxes in India, has recently issued a notification prescribing rules for the application of GAAR. The rules clarify that GAAR would apply to all tax benefits obtained after April 1 2015. However, it also provides certain exemptions where GAAR would not apply which are as below:

  • An arrangement where the aggregate tax benefit of all the parties to the arrangement in the relevant tax year does not exceed INR30 million ($487,770).

  • A foreign institutional investor (FII) who has not taken any benefit under a tax treaty entered into by India with another country or a specified territory and has invested in listed or unlisted securities with prior permission of the competent authority in accordance with Indian regulatory laws.

  • A non-resident investor who has invested in an FII directly or indirectly by way of an offshore derivative instrument or otherwise.

  • Any income derived from transfer of an investment made before August 30 2010 (the date of introduction of the Direct Tax Code Bill 2010) by such person.

The rules also state that where a part of an arrangement is declared as impermissible, GAAR provisions would apply only in relation to such part and not to the entire arrangement. Further, procedure for invoking GAAR by the Indian revenue authorities is laid out which includes a window for taxpayers to raise objections against invocation of GAAR at different levels during the proceedings. Other aspects like mode, form, manner and time limit for the various steps involved in the procedure are prescribed.

Introduction of GAAR had raised significant apprehensions with the stakeholders/investors followed by representations and expert committee recommendations on various aspects of GAAR. In view of the above, certain amendments were recently carried out in GAAR under the ITL. In the same spirit, the rules appear to address concerns of taxpayers to a large extent and provide clarity on the procedural aspects for application of GAAR. The rules will be effective from tax year 2015-16.

Rajendra Nayak (rajendra.nayak@in.ey.com) and Aastha Jain (aastha.jain@in.ey.com)

EY

Tel: +91 80 4027 5275

Website: www.ey.com/india

more across site & bottom lb ros

More from across our site

This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree