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With GAAR's deferral, India's tax laws could look more settled to investors, domestic and foreign
The announcement of a two-year deferral for the General Anti-Avoidance Rules (GAAR) would appear to be in line with measures to attract investment into the economy, such as the liberalisation of foreign investment in multibrand retail and the raising of the cap for investment from abroad in government and corporate debt. With external indicators like the current account deficit threatening to close the year at 4 per cent of the GDP, and internal indicators, such as the growth rate of the economy, reflected in an anaemic index of industrial production, the government had limited options. Finance minister P. Chidambaram has done well to make it clear that he will allow a long lead time for the new rules to come into effect.
The minister has introduced some changes to the GAAR recommendations of the Parthasarathi Shome committee. Two of these, the approving panel and the grandfathering clause, are departures that could be contested by investors. The ruling by the proposed three-member tribunal has now been made binding on the taxpayers and the department, a move that shortens the litigation cycle going ahead, but whose mandatory nature could be controversial. The date for the clause on the grandfathering of all tax cases in the ambit of GAAR since August 2010 could have been brought forward, instead, to the date of the current notification.
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