India defers GAAR reporting provisions

by Prabhakar KS, Shree Tax Chambers, Bengaluru, Karnataka, India

The Indian government, on 14 May, for the second time deferred reporting requirements for general anti-avoidance rule (GAAR) compliance. Tax audit reports and the prescribed particulars required in Form No. 3CD for GAAR reporting are now due 31 March 2020.

Upon representations received from stakeholders, India’s Central Board of Direct Taxes (CBDT) has taken the new decision to hold those provisions in abeyance further.

India’s GAAR is in addition to, or in lieu of, any other basis for determination of tax liability of a specified person. The GAAR seeks to align tax liability with the real intention of the parties and the real effect of transactions.

The provision was adopted originally in the Finance Act, 2012 with effect from 1 April 2014. Those rules were replaced in the Finance Act, 2013 with new Chapter X-A which was inserted with effect from 1 April 2016.

The revised provisions were deferred for two years and made applicable to income in financial year 2017-18 (assessment year 2018-19 and subsequent years) in the Finance Act 2015.

In July 2018 the CBDT amended the existing Tax Audit Reports Form 3CD with effect from 20 August 2018 and deferred the implementation of the GAAR reporting requirements until 31 March 2019.

The revised format requires the following details:

1. Whether the assessee has entered into an impermissible avoidance arrangement, as referred to in section 96, during the previous year? (Yes/No)
2. If yes, then the Nature of the impermissible avoidance arrangement and Amount (in Rs.) of tax benefit in the previous year arising, in aggregate, to all the parties to the arrangement.

This latest deferment is a welcome move given the absence of detailed GAAR guidance, difficulties meeting the reporting requirements, and the paucity of time.

Further, newly elected central government will be in place soon and these issues will be addressed as a top priority.

— Prabhakar K S is Proprietor of  Shree Tax Chambers, Bengaluru, Karnataka, India.