Draft Guidelines Regarding Implementation of General Anti Avoidance Rules (GAAR)

The Chairman, CBDT, Vide OM F.NO. 500/111/2009-FTD-1 Dated 27 February, 2012 constituted a Committee under the Chairmanship of the Director General of the Income Tax (International Taxation) to give recommendations for formulating the guidelines for proper implementation of GAAR Provisions under the Direct Tax Code Bill, 2010 and to suggest safeguards to these provisions to curb the abuse thereof.

The terms of reference of the Committee was as under:-

  1.  Recommendations for formulating guidelines to implement the provisions of General Anti-Avoidance Rules (GAAR) as per section 123 of the Direct Tax Code Bill, 2010; and

 2.  Draft a circular as a safeguard so that the GAAR provisions are not applied indiscriminately in every case.

The Committee met for the first time on 6th March, 2012 and felt that the existing provisions of the Direct Tax Code Bill 2010(DTC) needed certain modifications and therefore various specific suggestions were made in this regard. These included suggestions on defining various terms as appearing in the DTC, changing the procedure of invoking the provisions of GAAR, prescribing time limits etc.

Subsequent to the first meeting, the Finance Bill 2012 was presented before the Parliament and it was gathered that most of the suggestions given in the first meeting were addressed in the Finance Bill 2012. The Committee thereafter examined the provisions related to GAAR in the Finance Bill 2012 as modified through Government amendments during the passage of the Bill in Parliament. The recommendations regarding guidelines/circulars have been made in light of the final provisions relating to GAAR in the Finance Act, 2012.

The Committee held several meetings between 06.03.2012 to 28.05.2012.

After exhaustive deliberations and broad based discussions with the officers, representatives of FII’s, members of the advisory committee and others stake holders, the Committee makes the following recommendations which would need to be split between Circulars and the Rules.

Proposals for inclusion in the guidelines

 1.  Guidelines u/s 101

Section 101 of the Finance Act, 2012, provides that “the provisions of this Chapter shall be applied in accordance with such guidelines and subject to such conditions and the manner as may be prescribed”. The Committee makes the following recommendations to be incorporated in the guidelines.

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