In a step that could boost the confidence of global investors, the Committee in its draft report, suggested that GAAR provisions should not be invoked to examine the genuineness of the residency of entities in Mauritius.
A lot of investments, particularly from foreign institutional investors flows through Mauritius because of the favourable tax regime in the island country. India has signed a double taxation avoidance agreement with Mauritius.
The Committee, headed by Parthasarathi Shome, has recommended that GARR be applicable only if the monetary threshold of tax benefit is Rs 3 crore and more.
The draft report, which was submitted to the Finance Ministry, has also sought comments from all stake holders by September 15. It maybe recalled that the Shome Committee was constituted by Prime Minister Manmohan Singh, as there were widespread ambiguities to the provisions and concerns of foreign investors with respective to GAAR introduced in the Budget of 2012-2013.
In fact, foreign investors have invested as much as $12 billion in Indian equities. A large part of the investments is routed through tax havens like Mauritius and the introduction of GAAR had caused nervousness amongst these set of investors.