The tax provisions would apply only to the income arising to taxpayers on or after April 1, 2013

In a bid to allay concerns of foreign investors over the controversial General Anti Avoidance Rules (GAAR), the Finance Ministry, on Thursday, proposed a monetary ceiling for invoking the tax provisions, and that too, only in cases where the FIIs (foreign institutional investors) opt to avail of the benefit of double tax avoidance treaties (DTAA).

In its draft guidelines issued late in the night, the Central Board of Direct Taxes (CBDT) did not specify as to what the monetary limit would be, but stated that “those deals which are over a prescribed limit should be covered by GAAR provisions”. Putting the draft in public domain for debate and feedback from stakeholders – ostensibly seeking their suggestions on the monetary limit – the CBDT guidelines said: “Where an FII chooses to take a treaty benefit, GAAR provisions may be invoked in the case of the FII, but would not in any case be invoked in the case of the non-resident investors of the FII”. Making it clear that non-resident investors of the specific FII would not come under the ambit of GAAR, it said that the tax provisions – as was pointed out by Finance Secretary R.S. Gujral earlier during the day – would apply only to the income arising to taxpayers on or after April 1, 2013.

Among other things, the draft guidelines have also proposed the setting up a

three-member ‘Approving Panel’ to decide whether a particular case would attract the provisions of the GAAR, and has sought to set time limits for completion of various actions under the tax provisions. The GAAR provisions, were proposed by Pranab Mukherjee in his Budget for 2012-13. However, in the wake of sharp criticism by foreign and domestic investors in view of the “Draconian” provisions, the government set up a high-level committee to look into their concerns and shelved the proposal for implementation to the next fiscal beginning April 1, 2013.

With Prime Minister Manmohan Singh taking charge of the Finance Ministry two days ago, the committee headed by Director General of Income Tax (international taxation) which looked into the concerns of the investors, has formulated draft guidelines which were released today for comments of stakeholders.

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