Govt May Reschedule GAAR to Enhance Business Sentiment

The GAAR provisions were introduced in the 2012-13 Budget by then Finance Minister Pranab Mukherjee to check tax avoidance and were to have come into effect from April 1, 2014. The proposal generated controversy, with investors getting apprehensive about harassment by tax authorities.

To soothe the nerves of jittery investors, in January 2013 then Finance Minister P Chidambaram announced the postponement of the implementation of Chapter X-A of the I-T Act (dealing with GAAR) by two years to April 1, 2016.

Per the provision, a business arrangement can be termed 'impermissible' if its main purpose is to obtain tax benefit. Under the original GAAR proposals, the anti-tax avoidance provisions could be invoked "if one of the purposes" was to obtain tax benefit.

The assessing officer has to issue a show-cause notice, with reasons, to invoke GAAR provisions and also has to give an opportunity to an assessee to explain whether an arrangement was 'impermissible.'

The government's decision to amend the provisions was in response to fears by investors that the tax department, armed with discretionary powers, would crack the whip even in cases where tax avoidance was not the intent.

--With PTI inputs--

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