GAAR : An Introduction

GAAR : An Introduction

GAAR stands for : "General Anti-Avoidance Rules"

GAAR is anti-tax avoidance rule, drafted by the Union Government of India, which prevents tax evaders from routing investments through tax havens* like Mauritius, Luxembourg, Switzerland etc.

According to the draft, GAAR will come into effect from 1 April 2013#. As per the guidelines, FII not opting for treaty benefits and ready to pay taxes will not come under GAAR, but those who do opt for dual taxation avoidance agreements will be covered into it.

GAAR is a concept which generally empowers the Revenue Authorities in a country to deny the tax benefits of transactions or arrangements which do not have any commercial substance or consideration other than achieving the tax benefit .Thus, we can say that GAAR consists of a set of broad rules which are based on general principles to check the potential avoidance of the tax in general, in a form which can not be predicted and thus can not be provided at the time when it is legislated.

* Tax havens are countries which have low tax regimes which provide individuals and business opportunities of tax avoidance or tax evasion. In Indian context, Mauritius is considered to be the most significant tax havens or tax evading route.
# GAAR has been postponed to 1st April 2016.


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