GAAR Provisions As Originally Incorporated By Finance Act 2012 and As Per the Statement of Finance Minister on 14^th January, 2013 – A COMPARISON

Issues	As per Finance Act ,2012	As per Finance Minister’s Statement	Implications
1.Applicability of GAAR	1st April , 2014 or A.Y. 2014-15	1st April, 2016 or A.Y. 2016-17	Two years breather. Income arising before 1st April, 2015 not covered in GAAR.
2.Existing Investments	Investments made before announcement of GAAR are not protected.	Investment made before 30th August, 2010 – date of introduction of Direct Taxes Code Bill2010 to be grandfathered.
3.Foreign Institutional Investors (FII)	No specific provision for FIIs. Provision in treaty will not be applicable if GAAR is invoked.	GAAR not to be invoked if treaty benefit is not taken.	Does not seem to give any relaxation as there is no tax advantage to FII under domestic laws for capital gain/ business income.
4.Non-resident investors in FIIs (including P- notes)	No specific relaxation.	GAAR not to be invoked.
5.Threshold for invocation	No specific provisions.	Monetary threshold of Rs. 3 crore of tax benefits.
6.Definition of impermissible avoidance arrangement	Any arrangement, the main purpose or one of the main purposes of which is to obtain tax benefit.	Only “main purpose“to be retained. “One of the main purpose” to be deleted.	A tighter definition. If tax benefit is only one of the reasons, than transaction is not impermissible.
7.Approving penal-constitution	A minimum of three members – Commissioner of Income Tax & one official of the level of Joint Secretary or above from the Indian Legal Services.	Three members-Chairperson to be the sitting or retired judge of High Court. Members : a)   One IRS Officer of the level of Chief Commissioner of Income Tax or above ; b)   One independent member with domain expertise.	Should provide independence on account of inclusion of judge & provide a balance on account of presence of expert.
8.Invocation process	Assessing Officer has to inform Commissioner before invoking GAAR. Commissioner is required to issue notice to assessee to make submissions.	Assessing Office is required to issue a show-cause notice to assessee with reasons, before invoking GAAR.
9.Approving Panel-Factors to be considered	Following factors not to be taken into account for determining substance: ·         Period for which arrangement existed. ·         Actual payment of taxes. ·         Exit route provided by arrangement.	Such factors may be considered by approving panel as relevant, not sufficient.	Assessing Officer can’t factor in these while invoking GAAR, but the approving penal can consider them.
10.Directions of approving penal	Binding only on Assessing Officer. Assessee could have filed appeal to ITAT.	Binding on both, assessee & Assessing Officer.	The assessee will lose the right to appeal to ITAT against the assessment order, once directions issued by approving penal in respect of transactions declared to be impermissible. The only remedy left may be a writ petition.
11.Effects of GAAR on arrangements partly impermissible	No limit on tax consequences. Would have extended to entire arrangement even if only a part was impermissible.	Tax consequences limited to only the part of arrangements found impermissible.	Impact of GAAR invocation likely to get restricted.
12.Impact of specific Anti-Avoidance Rules(SAAR)	No specific exclusion from GAAR where SAAR also exists.	Only one of GAAR or SAAR can apply guidelines to be issued.
13.Time limit for action	No specific time limit, except for directions by approving penal.	Time limit to be prescribed for all actions.
14.Audit	No specific provision for reporting of impermissible transactions by auditors.	Tax auditor to report any tax avoidance arrangement.	Likely to lead to higher compliance costs and differences of opinion between auditor & tax payer.

Regards

CA. Mona Singhal

Partner

Arpit Gupta & Associates

Chartered Accountants

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