GAAR abbreviation stands for general-anti-avoidance rules and it has been introduced in India due to VODAFONE case ruling in favour of this company by the Supreme Court. The new rules will come into effect from 01 April, 2012.
GAAR Implications in India:
- Indian Government is trying to give powers to income tax authorities as implementation of GAAR provides tremendous powers to deny tax benefit to an entity if a transaction has been carried with the sole intention of tax avoidance. Due to powers in the hand of taxmen, now innocents may be harassed by them.
- FII & FDI money coming to India through Mauritius route will now become taxable.
- Increased litigations.
GAAR – Worst Scenario:
The onus lies on the assesse to prove that there is no tax benefit and the transaction is not an avoidance transaction.
GAAR – Example
To make it easier to understand GAAR; we can say that suppose a person or a company is setting up business in Gulf Country and its clear intention is to claim exemption from capital gains tax, in such a scenario Indian govt has the right to deny the legitimate claim for exemption provided under DTAA as it falls under tax avoidance and Indian govt is trying to plug the loopholes.