Such was the euphoria and revival of investor sentiment on the bourses on Friday over the draft guidelines on GAAR (General Anti Avoidance Rules) released late Thursday night that the Prime Minister’s Office (PMO) scurried to issue a clarification that the guidelines were indeed a draft and they would be finalised based on feedback on approval by the Prime Minister.

“The GAAR guidelines that have been put up on the government website from the official level of the Finance Ministry and shared with some stakeholders are only draft guidelines and have been put out for receiving wide-ranging feedback and for discussion purposes only. These have not been seen by the Prime Minister and will be finalised with the approval of the Prime Minister, who holds the Finance portfolio, only after considering the feedback received,” the PMO statement said.

What perhaps called for the clarification was the boom on the stock markets. Following the Finance Ministry’s proposals, among others, of a monetary threshold for invoking GAAR and only in cases where FIIs choose to take the benefit of double tax avoidance treaties (DTAAs), foreign funds returned to invest in a big way. The Bombay Stock Exchange’s Sensex zoomed by 439 points to mark its biggest single-day gain in 2012 thus far. Also, the rupee not only halted its slide but also gained 119 paise against the U.S. dollar.

Also helping in the reversal of negative sentiments was the norm that the GAAR provisions would apply on income accruing only after April 1, 2013. Possibly, the government’s intention was to ensure that small investors should not get stuck in the market frenzy.

Even as the CBDT statement on GAAR had made it clear that the draft was being put on public domain to get feedback from all stakeholders to help finalise the guidelines after 15 days, Finance Secretary R.S. Gujral also asked the media not to draw their own conclusions on the PMO statement. “Don’t read too much into the release by the PMO… [the Prime Minister] has not applied his mind [on the draft GAAR guidelines]. Obviously the final guidelines will be after consultation with the PMO ... Suggestions from stakeholders will be taken in consideration and finally it has to be decided by the Minister in charge,” he said.

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