Latest on GAAR

The Central Board of Direct Taxes (CBDT) recently issued draft guidelines on General Anti-Avoidance Rules (GAAR), which will be applicable to income accruing on or after April 1, 2013. The guidelines state that GAAR applies only where an overseas institutional investor takes advantage of double taxation avoidance treaties.

The Prime Minister office has formed a four-member Expert Committee which will be in charge of the formulation of the GAAR. The chief function of the committee is to receive feedback from stakeholders and the common public on the first draft by the end of July, 2012, and then rework the draft and publish the second draft GAAR guidelines before the end of August 31, 2012 based on the feedback received. The committee will submit the final guidelines to the Government by September 30, 2012.

The committee will also review another major amendment introduced by the Government of India (GOI), which is the taxation of offshore share sale transactions on the basis of source rule, whereby gains from transfers of shares of a corporation incorporated outside of India (which derive, directly or indirectly, their value considerably from assets located in India) are taxable in India, irrespective of the resident status of the parties entering into the transaction.

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