In a bid to bring clarity in tax rules for foreign entities in India and their transactions, the government on Friday said the General Anti - Avoidance Rule (GAAR) to plug taxation loopholes, but yet recognise genuine players, will be applicable from 2017 - 18.
"Stakeholders and industry associations had requested for clarification on implementation of GAAR provisions and a working group was constituted by Central Board of Direct Taxes (CBDT) to examine the issues raised, " an official statement said.
"Accordingly, CBDT has issued the clarifications on implementation of GAAR provisions today. "
Among the provisions, if the jurisdiction of a foreign portfolio investor is finalised based on non - tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, these rules will not apply.
They will also not interplay with the right of the taxpayer to select the method of implementing a transaction.
Further, grandfathering (or the application of old rules on certain transactions) will be available in investments made prior to April 1 this year.
These include compulsorily convertible instruments, bonus issuess or stock splits, consolidation of holdings in respect of investments made prior in the hands of the of the same investor.
"It has also been clarified that the adoption of anti - abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti - avoidance rules, " the statement said.
GAAR was first proposed in 2010, targeting transactions made specifically to avoid taxes by companies such as Vodafone and Hutchison Essar.
It applies to a company in case of abuse of treaty for gaining undue tax benefit.
The rules are aimed at improving transparency in tax matters and help curb tax evasion.
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