The fate of the ‘much-dreaded’ General Anti-Avoidance Rules (GAAR) for foreign investors, under the new Finance Minister P. Chidambaram will be decided by this month end.
By October end, the Finance Ministry will come up with final guidelines on GAAR and also take a decision on whether or not to go in for legislative changes to the current framework, Chidambaram said here on Monday.
This comes on a day the Parthasarathi Shome panel submitted its final report on GAAR. The draft report, which was submitted on September 1, had recommended deferment of GAAR by three years.
Chidambaram’s remark that the guidelines would need the Law Ministry’s vetting before getting finalised is seen as a strong indication of the legislative changes on the anvil. He assumed charge as Finance Minister on August 1.
GAAR is already part of the statute book. The Government had, in mid-May, postponed its implementation by a year to April 1, 2013. Any change in this date would now require an amendment to the income tax law, say tax experts.
Three stages
Outlining the timelines as regards future course of action on GAAR, Chidambaram said this could be broadly split into three stages.
While the first stage related to the Ministry’s finalisation of views on the Shome panel’s final report, the second stage relates to finalising GAAR rules. The third stage, if necessary, would be to amend the income tax law.
“Stage I and II will certainly be there. There could also be a third stage, which depends on the decisions taken in phases I and II. If it is necessary to amend the Act, we have to find a way to do it, and this would require time, as Cabinet approval is required.”
The first stage will be over in the next 10 days. The second will take another 10 days, as it requires vetting by the Law Ministry, Chidambaram said, adding that all the decisions on GAAR implementation will be ready by the month-end.
“We now have to examine the final report. To the extent, we accept the final report, we have to amend the draft rules. Depending on what amendments we do, it may also be necessary to introduce changes to the relevant provisions of the Income Tax Act,” he said.
The reference to the Law Ministry suggests that amendments for change in law are being evaluated, Aseem Chawla, Partner, MPC Legal, told Business Line .
On the Shome panel’s second report, Chidambaram said he had on Monday received two reports from Shome — one on GAAR and the other on retrospective changes to income tax law. The report on retrospective changes also covers FII taxation, besides FDI issues.
“The second report will be put out on the Web site and 15 days’ time will be given for feedback, and then we will examine it,” Chidambaram said.