CBDT Clarifies GAAR Implementation Through 16 Point FAQs

Background

Inarguably one of the biggest tax reforms that the country has ever witnessed, the General Anti-Avoidance Rules (GAAR) inserted in Chapter X-A of the (Indian) Income-tax Act, 1961 (IT Act) are slated to take effect from 1 April 2017. Since the Central Board of Direct Taxes (CBDT) notified the GAAR provisions in the Income-tax Rules, 1962 (IT Rules) on 23 September 2013, uncertainty over their implementation has been a cause of worry for investors. A working group was constituted in June 2016 and based on their comments, the CBDT released a set of sixteen FAQs on 27 January 2017 to clarify the application of GAAR in certain situations.

SAAR v GAAR

The CBDT clarified that the provisions of Specific anti-avoidance rules (SAAR) in the form of the Limitation of Benefit (LOB) test in a tax treaty may or may not adequately address all tax avoidance strategies. If avoidance is 'sufficiently addressed' by the LOB test in the respective tax treaty, GAAR will