A threshold limit to GAAR : CBDT Chairman

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Some good news about the GAAR – a set of rules that invalidates arrangements by entities to avoid tax- is in air.Media report quotes Chairman of Central Board of Direct Taxes (CBDT) promising that  a threshold limit for applying General Anti-Avoidance Rules (GAAR) under the Direct Taxes Code (DTC) shall be applied .cbdt chairman

“I can understand that if GAAR comes as a piece of legislation, there will be considerable apprehensions… No doubt. But in a moderate tax regime, aggressive tax planning should not be encouraged. That is the basic premise for GAAR.

“But I assure you that while framing rules, we will look at it very carefully and I am sure the apprehensions will be removed to a large extent. Differences will be there,” Mr M. C. Joshi, Chairman, CBDT, said here on Friday [ courtesy Business Line ]

The CBDT will come out with guidelines specifying the conditions and the manner of application of GAAR provisions, including the threshold limit beyond which it would be invoked, Mr Joshi said. The circumstances in which GAAR may or may not be invoked will also be provided, he added.

GAAR  -Damocles’ Sword ??

The new DTC is proposed to be effective  from April 1, 2012. and with that the GAAR regime shall start , a though of which has kept corporates  still guessing nervously on the application of GAAR .

The GAAR provisions are expected to be used for domestic as well as international transactions and  would enable tax authorities to focus on large transactions to enhance revenue collections and also avoid harassment and possible inconvenience to taxpayers

However , India Inc considers  GAAR as a Damocles’ Sword . It suspects that the anti-avoidance rules could always be used to deny treaty benefits.India Inc has been lobbying hard for a threshold limit (for a specified amount of tax) to be provided in the DTC Bill beyond which the GAAR should be invoked.