Industry body Assocham has sought deferment in the introduction of General anti-avoidance rules (GAAR) under the Indian income tax law, underscoring that at this juncture to introduce GAAR as part of tax law is not warranted in the country. Apex industry Chamber stated that Indian economy is not matured enough to stand up to the exacting standards of GAAR examination. On the other hand, tax administration is also not ready to handle a sophisticated instrument like GAAR.
Assocham highlighted that if GAAR is introduced at this stage, it will only act as a grip for more harassment of taxpayers, thus making the tax administration more adversarial.
GAAR is anti-tax avoidance rule which prevents tax evaders, from routing investments through tax havens like Mauritius, Luxemburg, Switzerland. There are roughly 45 tax havens in the world today. In Indian context, Mauritius is considered to be the most significant tax havens or tax evading route. The tax evasion in India through, Mauritius is estimated to be over $55 billion , mostly attributed to the loopholes in a bilateral agreement on double taxation.
According to GAAR guidelines, foreign investors not opting for treaty benefits and ready to pay taxes will not come under GAAR, but those who do opt for dual taxation avoidance agreements will come under its purview. The rule empowers the revenue department to annul any deal that has been made with the deliberate attempt to avoid tax. This rule applies to those claiming tax benefits over Rs 3 crore.
On Direct taxes code (DTC) issue, Assocham suggested the government not to introduce DTC as this would entail more cost than benefit. Assocham is of the view that a certain level of stability has been achieved with the present law. It added that introduction of a new law with new concepts will only unsettle the situation and more time will be spent on understanding it and putting a mechanism to administer it.