To soothe investors' nerves, Finance Minister Arun Jaitley today deferred the controversial General Anti-Avoidance Act (GAAR) by two years, saying its immediate applicability can create 'panic' in markets.
Besides, the new rules would be put in place after resolving "certain contentious issues" and the implementation would eventually happen with prospective effect, he said.
"Today I still feel there is vulnerability in Indian economy in terms of attracting investments.
"...If I bring in GAAR now with or without amendment, it will create panic in the market. This is not the stage where I can afford allowing investors to run away or investment not to come... Inadequate investment can also affect rupee-dollar parity," Jaitley said.
He made these comments at a talkathon on Union Budget 2015-16 on video sharing site YouTube, where he was replying to citizens' queries.
Earlier in the day, Jaitley said in his Budget speech that "there are also certain contentious issues relating to GAAR which need to be resolved. It has therefore been decided to defer the applicability of GAAR by two years."
"Further, it has also been decided that when implemented, GAAR would apply prospectively to investments made on or after April 1, 2017," Jaitley said.
Implementation of the GAAR has been a matter of public debate and investors from India and abroad had raised serious concerns about it.
The Government had earlier proposed imposing the GAAR from April 1, 2015, for those claiming tax benefit of over Rs 3 crore. The rules are aimed at minimising tax avoidance for investments made by entities based in tax havens.
Jaitley said it GAAR is now proposed to be applicable for income of the financial year 2017-18 and subsequent years.
"It is also proposed that the investments made upto March 31, 2017 shall not be subjected to GAAR," the Finance Minister said.
Jaitley said that general rules of avoidance have now been redefined globally.
"Now the new rules of interpretation have completely done away with this distinction of tax avoidance and tax evasion. And it is that rule which will have to be applied," Jaitley said.
Jaitley also stressed on the need to reestablish credibility on tax matters and said that India had fairly bad track-record during the UPA regime.
Religare Enterprises' Chairman and MD Sunil Godhwani said that the deferment of GAAR rules will improve business confidence in India and help attract global fund flows.
Bajaj Finserv MD Sanjiv Bajaj also said the deferment of GAAR by two years, among other initiatives, will set the base for regaining the growth momentum.
Reliance Mutual Fund CEO Sundeep Sikka also said that deferment of GAAR was a major positive move for foreign investors and overall investor sentiments.
