The Shome Committee on GAAR (General Anti Avoidance Rules) has proposed a monetary threshold of Rs 3 crore of tax-benefit to a taxpayer in a year for the applicability of GAAR provisions.
Simply put, GAAR should not be invoked where the tax benefit is less than Rs 3 crore in a year, the panel has suggested.
This forms part of a series of recommendations put out in a report to help fortify the foundations of GAAR framework to give a level-playing field to taxpayers.
The Shome Committee has also recommended the concept of a ‘negative list’ for the purpose of invoking GAAR.
The negative list could include payment of dividend or buy-back of shares by a company; setting up of a branch or subsidiary; setting up of a unit in SEZ or any other place; funding through debt or equity and purchase or lease of a capital asset.
Also, amalgamations and de-mergers as approved by the High Court should form part of the negative list, the Shome Committee has suggested.
Intra-group transactions
Another significant recommendation is that GAAR should not be invoked in intra-group transactions (i.e transactions between associated persons or enterprises) which may result in tax benefit to one person but overall tax revenue is not affected either by actual loss of revenue or deferral of revenue.
Shome Commiittee has also suggested an amendment to the income-tax law to provide that only arrangements which have the main purpose (and not one of the main purpose) of obtaining tax benefit should be covered under GAAR.
Amendment to I-T law
It has also called for an amendment to the income-tax law to include a definition of ‘commercial substance’.
On Mauritius, GAAR should not apply to Mauritius residents holding valid tax residency certificate, the panel has said.
Proposal hailed
Tax practitioners and apex industry chambers have hailed the Shome Committee recommendations.
Rahul Garg, Leader Direct Tax, PwC India, said the recommendations of the committee clearly indicate the responsiveness on the business concern. “If implemented, it could go a long way to help the business climate and establish credibility that was needed most at this time.”
The Shome Committee report on GAAR is a welcome respite, said Aseem Chawla, Partner, MPCLegal. The fact that a threshold of Rs 3-crore tax-benefit and grand-fathering provision have been recommended is a balanced and mature view point, he said.
The recommendation to abolish tax on any gains on transfer of listed securities could go a long way in reviving the investment and capital market sentiment, said Pranav Sayta, Tax Partner, Ernst & Young.