The Indian Ministry of Finance has proposed certain amendments to the Union Budget 2012-13, which introduced certain provisions to check tax evasion. To address concerns of the adverse impact of the provisions, the Indian finance minster has announced revision of the Union Budget.

The proposed amendment highlights areas like deferred implementation of General Anti-Avoidance Rules (GAAR), retrospective amendments to indirect transfers abroad and capital gains on private equity.

The proposed revisions to the tax evasion laws are as follows:

Revisions to General Anti-Avoidance Rules (GAAR)

* Provisions of the GAAR are expected to be applicable in the financial year 2013-14 and following years.

* Proposed amendments for the GAAR include:

* Shift of onus of proof from the taxpayer to the Revenue Department in case of any action taken under the GAAR.

* To ensure transparency, an independent member will be introduced in the GAAR approving panel.

* In order to check if proposed transactions do not contravene provisions of the GAAR, resident as well as non-resident taxpayers can apply for an Advance Ruling.

The Committee formulated under Director General of Income Tax
(International Taxation) is to provide suggestions to formulate guidelines for the successful implementation of the GAAR by May 31, 2012.

Retrospective amendments involving Capital Gains arising out of indirect transfers abroad on sale of assets located in India

* Such amendments will be applicable to specific cases where a transfer is facilitated through a low tax or no tax jurisdiction which does not have a Double Taxation Avoidance Agreement (DTAA) with India. In addition to
this, the provisions of DTAAs signed by India with foreign countries will not be overridden.

* The retrospective amendments which are under consideration of the Parliament of India won’t be used to reopen cases where assessment orders have already been done.

* The benefits will not be applicable to Vodafone like cases which involve low tax and non-DTAA destinations like Cayman Island.

Share Taxability (Taxability of shares transferred between closely held companies at a value in excess of the fair market value of shares)

In order to encourage angel investors, it has been proposed to provide a provision to exempt a notified class of investors. Any considerations obtained by a closely held company exceeding the market value will be taxable.

Security Transactions Tax (STT)

Unlisted Securities in an Initial Public Offering (IPO) will be subject to an STT of 0.2%. However, long term capital gain on the same will be non-taxable.

Capital gains tax

Long term capital gains arising upon the sale of unlisted securities by Non-resident investors (other than Foreign Institutional Investors-FIIs) will be subject to 10% tax (such sale transactions have been subject to 20% tax). To bring fairness to such investors, the finance minister has proposed to bring down the tax rate to 10% as applicable to FIIs.

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This release was published on openPR.