FII income post April 1, 2012 to come under GAAR: Sources

Income of foreign institutional investors (FII), accrued after April 1, 2012, will come under general anti-avoidance rule (GAAR), finance ministry sources say.

After several meetings with foreign institutional investors (FIIs), sources in the finance ministry say that they are not considering a sunset clause for general anti-avoidance rule (GAAR), reports CNBC-TV18’s Aakansha Sethi. This is something that FIIs have been pushing for. If investments are made prior to April 1, 2012, which is when GAAR comes into effect, and if the exit is after April 1, 2012, should these investments come under the GAAR scanner, since they were made before the law was actually introduced? Sources in the finance ministry very clearly say that there is going to be no grandfathering or sunset clause for such investments. Even for investments that have been made prior to April 1, 2012, but where the exit is later, these will come under the GAAR scanner. If it is an impermissible structure and it is a tax avoidance structure then no matter what the treaty is or when the investment has been made, it is going to come under the general anti-avoidance rule scanner. Ofcourse the meetings with FIIs continue. The last word will be had in this only in the FM speech in Parliament after the recess.