GAAR postponed for a year; Foreign investors breathe easy, rupee gains

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GAAR postponed for a year; Foreign investors breathe easy
After a couple of months of stress and anxiety over The General Anti Avoidance Rules (GAAR) and its provisions, foreign investors can finally breathe easy as Finance Minister Pranab Mukherjee has deferred GAAR by a year.

Mukherjee also said the onus of proof will lie with the tax authorites and that the proposed retrospective amendment of income tax laws will not override DTAAs with 82 countries. Speaking in parliament today he also said that the Finance Bill would be amended accordingly and that he would introduce independent members to the GAAR panel.

The FM's announcement saw the rupee gaining sharply to 52.98, as against its Friday's close of 53.47.
The BSE Sensex which was down more than 300 points in early trade, was down by just 66 points after the FM's announcement and clarifications on GAAR.

The GAAR provisions had foreign investors, particularly foreign institutional investors worried, as there was a belief that p-notes would be taxed. Marketmen are still not clear on a host of issues and will wait for some more time to understand the provisions of GAAR.

However, following a staggering net investments of Rs 44,000 crores in equities, FIIs turned sellers in April of Rs 777 crores, largely worried that they would be taxed through GAAR. The General Anti Avoidance Agreement was drafted so as to ensure that foreign companies do not use tax havens like Mauritius to escape paying tax in India. 

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