GAAR to come into effect from April 1

The government on Friday sought to set aside the uncertainties around the anti avoidance rules which prevent companies from routing transactions through other countries to avoid tax.The General Anti-Avoidance Rules or GAAR is coming into force from April 1.

“If the jurisdiction of FPI (foreign portfolio investors) is finalised based on non-tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply,” the finance ministry said in a statement.

It said GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction.“Further, grandfathering as per income tax rules will be available...,” it said.

It



also clarified that adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules.“However, if a case of avoidance is sufficiently addressed by Limitation of Benefits (LoB) provisions in the tax treaty, there shall not be an occasion to invoke GAAR,” the statement said. 

The ministry also sought to clarify that if at the time of sanctioning an arrangement, the court has explicitly and adequately considered the tax implications, GAAR will not apply to such an arrangement.GAAR will also not apply if an arrangement is held as permissible by any authority for advance rulings.