Parliament panel for balanced GAAR to check tax evasion

A Parliamentary panel scrutinising Direct Taxes Code (DTC) Bill today pitched for a balanced General Anti Avoidance Rule (GAAR) norms to check tax evasion, arguing that tough regulations could hurt foreign investments.

"In view of the apprehensions expressed by different stakeholders on the applicability of GAAR proposals, the committee would recommend that the (Finance) Ministry and the CBDT should seek to bring greater clarity and preciseness to the scope of the provisions," said a report of the Standing Committee on Finance on the DTC Bill.

A General Anti Avoidance Rule is a set of broad and general principles-based rules enacted in the tax code aimed at counteracting avoidance of tax.

The report added: "There should be certainty on these provisions so that foreign investors do not become wary of investing in the country ... The provisions to deter tax avoidance should not end up penalising taxpayers who have genuine reasons for entering into a bonafide transaction."

The report has also asked government to remove uncertainty's with regard to applicability of the double tax avoidance agreement (DTAA) treaties.

"Uncertainties with regard to applicability of tax treaty provisions should be removed so that India's credibility as a reliable treaty partner is not affected," it said.

The DTC Bill proposes to introduce omnibus provisions such as GAAR to prevent evasion of taxes by corporate. These regulations are also aimed at preventing recurrence of cases like Vodafone.

It said that the GARR proposals should not lead to any fiscal uncertainty or ambiguity, adding "frivolous cases should be avoided for which a threshold may be prescribed under the Rules".

The report also asked the government to apply GAAR provisions prospectively so that it is not made applicable to existing arrangements or transactions.

Alternatively, it added, suitable provisions may be incorporated in the Bill to protect the interest of taxpayers who have entered into structures or arrangements under the existing law.