In line with his promise that India will not levy any tax with retrospective effect, Finance Minister Arun Jaitley Saturday announced that the government would delay by two years the implementation of the planned General Anti-Avoidance Rules (GAAR), which will be applied prospectively from fiscal 2017-18."It has been decided to defer the applicability of GAAR by two years," Jaitley told the Lok Sabha while presenting the NDA government's first full budget. "Further, it has also been decided that, when implemented, GAAR would apply prospectively to investments made on or after April 1, 2017," he added.
GAAR, proposed by then finance minister Pranab Mukherjee in budget 2012-13, is an anti-tax avoidance rule, which prevents tax evaders from routing investments through tax havens like Mauritius, Luxembourg and Switzerland.It evoked sharp reactions from foreign as well as domestic investors who feared that the law could be misused by taxmen to harass investors.The finance ministry had earlier said it would implement GAAR from April, 2014.The provisions will, when implemented, apply to tax benefits arising from transactions valued at above Rs.3 crore ($500,000).
Retrospective taxation has evoked much criticism from domestic and overseas investors, notably Britain-based telecom major Vodafone. Vodafone was slapped with a Rs.20,000 crore retrospective capital gains tax after it acquired the telecom assets of Indian conglomerate Essar Group via Vodafone Mauritius.Jaitley in his maiden budget speech July last year had assured that India will not resort to retrospective taxation randomly."This government will not ordinarily bring about any change retrospectively which creates a fresh liability," he had said.