Anti-avoidance tax rule to kick in from April 2017
Anti-avoidance tax, GAAR, which was part of 2012-13 Budget speech will come into force from April 1, 2017. It might lead to tax on P-Notes as indirect investments


Anti-avoidance tax rule to kick in from April 2017

  • Legislation against tax avoidance, GAAR, will kick in from April 1, 2017.
  • In its 2016 year-end review, the Central Board of Direct Taxes, which is the apex policy making body of the I-T department, listed its major achievements.
  • Major achievements of CBDT in the current financial year 2016-17 so far include, among others, Enactment of The Benami Transactions (Prohibition) Amendment Act, 2016, Implementation of The Direct Tax Dispute Resolution Scheme, 2016 and of GAAR from Assessment Year 2018-19.
  • General Anti-Avoidance Rule (GAAR) was part of 2012-13 Budget speech of then Finance Minister Pranab Mukherjee to check tax evasion and avoidance.
  • However, its implementation was repeatedly postponed because of the apprehensions expressed by foreign investors.
  • GAAR, which was originally to be implemented from April 1, 2014, will now come into effect from April 1, 2017 (Assessment Year 2018-19).
  • It contains provision allowing the government to prospectively tax overseas deals involving local assets.
  • There have been fears that the government may use it to target P-Notes. Through the use of GAAR, government may try to tax P-Notes as indirect investments, which could attract a tax rate of up to 15 per cent.
  • To avoid tax altogether under GAAR, an investor may have to prove that P-Notes were not set up specifically to avoid paying taxes.