MUMBAI: By postponing by two years of the General Anti-Avoidance Rule (GAAR), Finance Minister Arun Jaitley has addressed a large concern of investors. GAAR will be applied only prospectively.
Besides, the new rules would be put in place after resolving “certain contentious issues” and the implementation would eventually happen with prospective effect, he said.
“Today I still feel there is vulnerability in Indian economy in terms of attracting investments.
“...If I bring in GAAR now with or without amendment, it will create panic in the market. This is not the stage where I can afford allowing investors to run away or investment not to come... Inadequate investment can also affect rupee-dollar parity,” Jaitley said in his post-Budget address.
The Government had earlier proposed imposing the GAAR from April 1, 2015, for those claiming tax benefit of over `3 crore. The rules are aimed at minimising tax avoidance for investments made by entities based in tax havens.
Jaitley said it GAAR is now proposed to be applicable for income of the financial year 2017-18.
The Budget also proposes 5 per cent tax on interest on gilts and corporate bonds earned by FPIs will apply up to 30 June 2017.
Seeking to improve efficiency in regulations, the Budget merged commodity regulator Forward Markets Commission with Securities and Exchange Board of India.
Yet, says Amitabh Chaudhry, MD at HDFC Life, more could have been done for encouraging domestic savings in financial assets especially longer term savings such as insurance.
Jaitley also proposed to merge the Forwards Markets Commission with SEBI to strengthen regulation of commodity forward markets and reduce wild speculation. “Enabling legislation, amending the Government Securities Act and the RBI Act is proposed in the Finance Bill, 2015,” the Finance Minister said.
To further simplify the procedures for Indian Companies to attract foreign investments, the Budget proposes to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments, and replace them with composite caps. The sectors which are already on a 100% automatic route would not be affected.
“The Finance Minister removed the difference between foreign direct investment and foreign portfolio investment. Capital gains earned by FPIs will be excluded from book profits while computing MAT,” said Suresh Swamy, a partner at PwC India.