The government of India has allotted a General Anti Avoidance Rule (GAAR) in order to combat tax avoidance. The GAAR which was originally introduced in the 2012/13 budget will be effective from 1 April 2016. The Rules are applicable for tax years beginning from 1 April 2015 and subsequent years and will apply to any arrangement with respect to a tax benefit acquired from tax year 2015-16 onwards.
The Rules also provide a monetary threshold in addition to certain exceptions where the GAAR would not apply which are as follows:
− Any arrangement where the aggregate tax benefit to all parties of the arrangement in the relevant tax year does not exceed INR30m. Any income derived from the transfer of investments made prior to 30 August 2010.
− A nonresident investor in a Foreign Institutional Investor (FII) who has invested directly or indirectly in an FII, by way of an offshore derivative instrument or otherwise.
− In the case of an Foreign Institutional Investor which:
– is evaluated as per the provisions of the ITL;
– has not claimed benefits under an Indian treaty; and
– has financed in listed or unlisted securities with prior permission of the competent authority in accordance with the applicable regulations.
It is also clarified that, where a part of an arrangement is GAAR-impacted, the tax significances would be fixed with reference to the impacted part only.
