The Central Board for Direct Taxes (CBDT), in its year-end review 2016, has stated that General Anti-Avoidance Tax Rule (GAAR), which was originally to be implemented from April 1, 2014, will now come into effect from April 1, 2017. GAAR contains provision allowing the government to prospectively tax overseas deals involving local assets. In its year-end review, tax department listed its major achievements so far include, among others, Enactment of The Benami Transactions (Prohibition) Amendment Act, 2016, Implementation of The Direct Tax Dispute Resolution Scheme, 2016 and of GAAR from Assessment Year 2018-19.
During the 2015 Budget presentation, Finance Minister Arun Jaitley had said that GAAR implementation will be delayed by two years. Its implementation was repeatedly postponed because of the apprehensions expressed by foreign investors. Jaitley also said that the investments made up to March 31, 2017 shall not be subjected to GAAR, which was to be applied on those claiming tax benefits of over Rs 3 crore.
GAAR was part of the 2012-13 Budget speech of the then Finance Minister Pranab Mukherjee to check tax evasion and avoidance. There have been fears that the government may use it to target P-Notes. Through the use of GAAR, government may try to tax P-Notes as indirect investments, which could attract a tax rate of up to 15 per cent. To avoid tax altogether under GAAR, an investor may have to prove that P-Notes were not set up specifically to avoid paying taxes.