Indian lawmakers paved the way to bring one of the most significant contemporary tax reforms by introducing the provisions of General Anti Avoidance Rules (GAAR) in the Finance Bill, 2012 (Bill). They were earlier part of the Direct Tax Code, 2010 (DTC) but since the DTC could not be introduced in the budget session of the Parliament, the GAAR provisions were included in the Bill. The proposed provisions of GAAR give wide powers to the tax authorities in India to determine tax liabilities for certain impermissible avoidance arrangements and empower the tax authorities to lift the corporate veil, to adopt the substance over form test, economic substance test, and thin capitalization rules (i.e. re-characterization of debt into equity or vice versa) to identify the avoidance of tax, if any. Such sweeping powers proposed to be given to the tax authorities had evoked a lot of opposition which resulted in the government of India amending certain provisions of the Bill and deferring the implementation of GAAR to April 1, 2014.
INTRODUCTION
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