Clearing the air on General Anti Avoidance Rules (GAAR) provisions, Finance Minister P Chidambaram said the changes, based on recommendations of the Parthasarathi Shome Committee, would address concerns of worried investors.
"The modifications that we have done are fair, non-discriminatory, just and strike a balance between interest of revenue and interest of investors. So, all apprehensions should now be set addressed," he said, adding the government would come out with appropriate amendments to the I-T Act in the Budget.
GAAR, introduced in the Budget 2012-13 by the then Finance Minister Pranab Mukherjee with the aim of checking tax avoidance was to come into effect from April 1, 2014.
The proposal, however, generated controversy, with investors expressing apprehensions that it would result in unnecessary harassment by tax authorities.
"Having considered all the circumstances and relevant factors, the government has decided that provisions of Chapter 10A of the I-T Act (dealing with GAAR) will come into force from April 1, 2016 as against April 1, 2014," Chidambaram said.
He clarified that investments made by Non-Resident Indians (NRIs) through FIIs will not be covered by provisions of GAAR.
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Under the modified norms, business arrangements would be termed 'impermissible' if its main purpose is obtaining tax benefit. In such cases, GAAR can override international tax treaties.
Investors gave to thumbs-up to the decision to defer GAAR implementation as the BSE Sensex rose about one per cent or 243 points to two year high of 19,906.41.
Reacting to the decision, PwC India Joint Tax Leader Ketan Dalal said it will be a "breather to taxpayers, including international investors". (MORE)