How does Indian general anti-avoidance rules work?

Indian General Anti-Avoidance Rules relies heavily on the “substance over form” principle. It addresses directly the issue of tax avoidance. Under this new regime, the regulating ambit of transfer pricing will be widened, which will include domestic, as well as international, transactions.

The Indian government is truly adamant to combat tax avoidance. The new Finance Act, issued in 2012, has extended the existing General Anti-Avoidance Rules and related matters, but it will only come into force in April 1, 2016.

The immediate thought on the impact of Indian General Anti-Avoidance Rules is on the “Mauritius route”. Given the double tax treaty between India and Mauritius, many have taken this advantage to reduce their capital gain taxes – in fact, 40% of the FDI into India comes from Mauritius. In the new General Anti-Avoidance Rules, Mauritius-specific provisions have been inserted, such as requiring more financial proof of investment in Mauritius.