GAAR provisions to be effective from FY18: CBDT

The Central Board of Direct Taxes (CBDT) has announced that the general anti-avoidance rule (GAAR) provisions will become effective from assessment year 2018-2019 or financial year 2018 onwards. GAAR will not interplay with the taxpayer's right to choose the method of transaction.If a case of avoidance is addressed by limitation of benefits (LoB), it will not be an occasion to invoke GAAR. The proposal to apply for GAAR will be vetted first by the Principal Commissioner of Income-Tax. Grandfathering as per I-T rules will be available to Compulsorily Convertible Instruments (CCI), bonus/split issue. Grandfathering will also apply to investments made prior to April 1, 2017.If the purpose of arrangement is not to obtain a tax benefit, GAAR will not apply in such cases. GAAR will also not apply if the arrangement is held permissible by Authority For Advance Rulings (AAR).Also GAAR may also not apply if the location Of the FPI is based on non-tax commercial considerations.A proposal to apply for GAAR at the second stage to be vetted by a panel headed by a HC judge. Adequate safeguards are in place to ensure that GAAR is invoked in a uniform and fair manner.The government is committed to provide certainty and clarity in tax rules.GAAR, with this announcement has been deferred by a year, says Ketan Dalal of PwC. But they could be further deferred, he adds. HP Ranina, a senior lawyer says the application is absolutely necessary for the FPI, who have been at an unease due to a variety of reasons. They would only hope that it is not deferred again, he adds.The investment community will welcome the move, says Ranina.Watch video for more.