India Issues Draft Guidelines For Tax Rule

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  1. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    IIndia Issues Draft Guidelines For Tax Rule - WSJ.com

    NEW DELHI – India's government Thursday issued draft guidelines for implementing a controversial rule introduced to fight tax evasion, suggesting that the provisions be applied from April 1, 2013, and that the onus of proving wrongdoing should be on the authorities.

    A panel of seven members proposed that to avoid "the indiscriminate application of the GAAR [General Anti-Avoidance Rules] provisions and to provide relief to small taxpayers, there should be monetary threshold for invoking the GAAR provisions," the Central Board of Direct Taxes said as part of the draft guidelines.

    The guidelines were formulated by a panel of seven members who were asked to suggest safeguards so that the GAAR provisions are not applied indiscriminately in every case.

    The anti-avoidance rules and a retrospective tax amendment--both proposed in the federal budget in March--have rattled investor confidence, sparked a wave of criticism both domestically and overseas, and led to flight of capital. The two were seen as desperate means by a cash-hungry government to raise funds to rein in its yawning budget deficit. Many investors had said that the anti-avoidance rules, which give authorities powers to scrutinize any deal that they feel has been structured to evade taxes, would give unbridled power to tax authorities and that all deals could be viewed with suspicion. Some feared it would be used to target transactions routed through jurisdictions such as Mauritius with which India has a double-tax-avoidance treaty.

    The sharp criticism forced the government to defer implementation of GAAR by a year to April 1, 2013.

    Prime Minister Manmohan Singh, who took charge as the finance minister Wednesday, has already identified "problems on the tax front" as having contributed to a "general negative mood."

    The panel came out with its draft guidelines after meeting various representatives of foreign institutional investors and other stake holders to understand their concerns.

    Earlier Thursday, the government denied reports that it planned to scrap the controversial rules, but said will it resolve contentious issues regarding the tax proposal in the next two to three weeks. It said that draft guidelines on implementing the rules would be released late Thursday.

    Finance Secretary R.S. Gujral told reporters that the draft guidelines will be open for comments for 15 days, and that final guidelines will follow.

    The panel suggested that GAAR provisions should be invoked on a foreign institutional investor, or FII, if it chooses to take a treaty benefit, "but would not in any case be invoked in the case of the non-resident investors of the FII.

    It said that the GAAR provisions are meant for cases of tax evasion, not avoidance, or tax mitigation, where a tax payer takes advantage of a fiscal incentive allowed by a tax law.

    In a case where only a part of an arrangement is not allowed, the provisions will be limited to only that part, the panel proposed.

    "Consistency of approach" is essential for invoking GAAR, and the panel felt that there should be "absolute certainty" about the time limits during which the various actions under the provisions are to be completed.
     
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  3. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    Official press release is here Press Information Bureau English Releases

    A small excerpt here
     

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