Lok Sabha Question No. 2116 (UNSTARRED), answered on 2016-07-29
Subject: Implementation of GAAR
Ministry: FINANCE
Asked by: JAYADEV GALLA

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE LOK SABHA UNSTARRED QUESTION No. 2116 TO BE ANSWERED ON FRIDAY, THE 29 th   JULY, 2016 7, SRAVANA, 1938 (SAKA)

## IMPLEMENTATION OF GAAR

## 2116. SHRI JAYADEV GALLA:

Will the Minister of FINANCE be pleased to state:

- (a) the  time  when  the  General  Anti-Avoidance  Rule  (GAAR)  was  notified  along  with  key features of the same;
- (b) whether the Government sought views from the stakeholders on GAAR, if so, the details thereof and the action taken thereon;
- (c) the reasons for deferring implementation of GAAR; and
- (d) the steps taken or proposed to be taken to implement the GAAR effectively?

## ANSWER MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI SANTOSH KUMAR GANGWAR)

- (a) The  General  Anti  Avoidance  Rule  (GAAR)  provisions  as  currently  contained  under Chapter X-A of the Income-tax Act, 1961 (the Act) was introduced by Finance Act, 2013 and was initially  to  be  applicable  from  01.04.2016.  However,  the  Finance  Act,  2015  had  deferred  its applicability by two years. Accordingly, GAAR would apply from 01.04.2018, i.e.; to income of financial year 2017-18 onwards.

Madam Speaker, the key features of GAAR are as under:

- (i) Under GAAR, an arrangement,  the  main  purpose  of  which  is  to  obtain  tax  benefit  and which satisfies one of the four objective tests, would be considered an impermissible avoidance arrangement.  The  objective  tests  include  misuse  or  abuse  of  provisions  of  the  Act,  lack  of commercial  substance,  transactions  being  undertaken  under  non-arm's  length  conditions  and involves non-bonafide purposes.
- (ii) Once  the  arrangement  is  declared  to  be  impermissible  avoidance  arrangement,  the  tax benefit arising from it shall be denied.
- (iii) The GAAR provisions contain adequate safeguards by way of mandatory approval by an independent Approving Panel headed by a High Court Judge before arrangement being declared impermissible .

(b) Due  to  concerns  raised  by  various  stakeholders  in  respect  of  the  GAAR  when  it  was introduced through the Finance Act, 2012 for the first time, an Expert Committee was constituted to undertake stakeholders' consultations and finalise the GAAR guidelines.  The report of the Committee was considered by the Government and its major recommendations were accepted  with  some  modifications.    Consequently,  necessary  amendments  were  made  by  the Finance Act, 2013 and modified Chapter X-A was introduced. (c) GAAR provisions, originally introduced through Finance Act, 2012, was deferred by the Finance Act, 2013 to be effective from 01.04.2016 and thereafter by the Finance Act, 2015 to be effective from 01.04.2018. The deferral was made primarily as several stakeholders had expressed concern and raised certain contentious issues seeking clarity and also time for adapting to new tax environment under GAAR regime. The Government has called for and  received several suggestions from stakeholders and

(d) general public for issuance of guidelines for implementation of GAAR.

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