STORY: India will delay by two years the implementation of controversial rules on tax avoidance to 2016, said Finance Minister Palaniappan Chidambaram on Monday (January 14), giving some respite to investors after the measures dented confidence at a time the country needs capital inflows.
The General Anti-Avoidance Rules (GAAR), which will target companies and investors routing money through tax havens, had been scheduled to be implemented from April 2014. They will now come into effect from April 01, 2016.
“Having considered all the circumstances and relevant factors, government has also decided that the provisions of chapter 10A will come into force with effect from April 01, 2016 as against the current provision of April 1, 2014,” said Chidambaram in New Delhi.
Chidambaram said GAAR will not apply to foreign funds that are not taking any benefit from India’s various tax treaties with other nations.
GAAR will also not apply to non-resident Indians running foreign funds, he told a news conference.
“The investor and an FII (Foreign Institutional Investor) and the FII investing in India, the non-resident investor in FII will not be covered by GAAR,” said Chidambaram.
The minimum threshold to come under GAAR will be 30 million rupees, Chidambaram said.
Chidambaram said the modifications have been fair and in the interest of investors.
“The modifications that we have done are fair, non-discriminatory, just and strike a balance between interest of revenue and the interest of investors. So, all apprehensions should now be set addressed,” said Chidambaram.
India’s moves to toughen tax collection last year had triggered an outcry from global industry groups and were blamed for a fall in investment flows into India.
In response, Indian Prime Minister Manmohan Singh set up a panel to look at ways of addressing concerns that the new laws were arbitrary.
The Sensex rose as much as 1 percent on Monday after India deferred implementation of controversial rules on tax avoidance until 2016 and after a slower-than-expect rise in inflation cemented hopes for an interest rate cut this month.