The Central Board of Direct Taxes (CBDT) has said that the General Anti-Avoidance Rules (GAAR) will become effective from April 1. GAAR aims to check cases of tax avoidance, wherein companies might be routing transactions through other countries. GAAR can be invoked through a two-step process, wherein approval will be required at the level of principal commissioner of income tax and a panel headed by a high court judge.
Ahead of its implementation, CBDT tried to allay investors’ concerns by saying that the tax department will not try to force companies to choose a specific method of transaction. It also said that GAAR will not be applicable in cases where funds are routed through a jurisdiction based on non-tax commercial considerations. Further, the provisions available within GAAR will be effective from the assessment year 2018-19 onwards and will not be invoked just on the basis that the entity is located in a tax efficient jurisdiction.
“If the jurisdiction of FPI is finalized based on non-tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply. GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction,” the CBDT said in a statement.