Budget 2016: GAAR to come into effect from next year

Finance Minister Arun Jaitley reiterated the government commitment to implement General Anti Avoidance Rules (GAAR) from April 1, 2017, a promise that should please foreign institutional investors who will have clarity on the government’s plans of taxing indirect transfers.

It was initially included in the Income Tax Act in 2012 but implementation was postponed after opposition from foreign investors.

“I would like to reiterate our commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017,” said Finance Minister Arun Jaitley on Monday presenting Budget for 2016.

A committee set up by the government, headed by tax expert Parthasarathi Shome, had submitted two reports in 2012— on GAAR and retrospective amendments relating to indirect transfers.

The government has deferred GAAR but it will apply to investments made on or after April 1,2017, when implemented. “This is likely to align Indian tax laws with legislation of Base Erosion and Profit Shifting (BEPS) action plans,” said Naveen Aggarwal, Partner – Tax, KPMG in India.

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