March 4, 2016
Anti-avoidance framework in the form of GAAR will be effective from April next year, but the government is ready to give any guidance to provide more clarity, revenue secretary Hasmukh Adhia has said. He also said that the government cannot remove minimum alternate tax till corporate tax exemptions are in place.
“GAAR is definitely coming in from April 1, 2017. When we said in the Budget we are postponing implementation of PoEM (place of effective management rules) by one year we did not want you to get an impression that this government is also going to postpone GAAR,” Adhia said on Thursday.
Last year, finance minister Arun Jaitley had deferred applicability of General Anti-Avoidance Rules (GAAR) by two years. “GAAR implementation by the government ought to happen as scheduled as foreign institutional investors and other such portfolios have been escaping capital gains in one form or the other, keeping the domestic industry at disadvantages and, therefore, it should come out openly in support of the government to implement it as scheduled,” Adhia said at a post-Budget interaction at PHD Chamber of Commerce and Industry. The government had originally 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. “Now PoEM and GAAR are both set to come. Our rules are already laid. If any guidance is required for offshore funds we will provide,” Adhia said.
The rules for determining place of effective management of a company have been deferred till April 2017 so as to give companies sufficient time to prepare accounts according to their place of residency under the new norms, he said. PoEM was to come into effect in the current fiscal. However, the final guidelines are yet to be put in place by the Central Board of Direct Taxes. “Since this Finance Bill will get passed by the middle of May, we should not ideally introduce PoEM on the date which is not beginning of the year. So that is why we are postponing PoEM,” the revenue secretary said. He said stakeholders have raised concerns that if PoEM is implemented in later part of any financial year, then certain taxpayers would be found to have flouted rules of paying advance tax and tax deducted at source or TDS since the beginning of year.
“This was a fair point. So we have to make legislative changes this year in Finance Bill which says that if a company is considered resident under PoEM guideline, they will not have obligation of TDS and advance tax for that year. So this is the change we have brought about in the Finance Bill,” Adhia said. On MAT, he said the existing rates cannot be curtailed as industry has been provided many exemptions.