The controversial GAAR provision,
which seeks to check tax avoidance by investors routing their funds through tax
havens, will come into effect from April 1, 2016, a government notification
said.
The provision of General Anti Avoidance Rules (GAAR) will
apply to entities availing tax benefit of at least Rs 3 crore, according to the
notification dated September 23.
It will apply to foreign institutional investors (FIIs)
that have claimed benefits under any Double Tax Avoidance Agreement (DTAA).
Investments made by a non-resident by way of offshore
derivative instruments or P-Notes through FIIs, will not be covered by the GAAR
provisions.
A business arrangement can be termed 'impermissible' if its
main purpose is to obtain tax benefit. Under the original GAAR proposals, the
anti-tax avoidance provisions could be invoked "if one of the
purposes" was to obtain tax benefit.
The notification is broadly in line with recommendations of
the Parthasarathi Shome Committee,
which was set up by Prime Minister Manmohan Singh in July last year to address the
concerns of investors.
