Countries impose taxes on various types with the objective of raising revenue for Government spending. Taxpayers may be expected to minimize their tax liabilities by arranging their affairs in a manner that is termed tax efficient i.e. through tax mitigation.
This does not include tax evasion. It has been universally accepted that tax evasion through falsification of records or suppression of facts is illegal.
The important points on GAAR
- An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision prescribing that it should be "the main purpose or one of the main purposes" will be amended accordingly
- The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement. While determining whether an arrangement is an impermissible avoidance arrangement, it will be ensured that the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years.
- Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code, Bill, 2010, will be grandfathered.
- GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs.
- A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR.
- Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement.
- Time limits will be provided for action by the various authorities under GAAR.
- The tax auditor will be required to report any tax avoidance arrangement.