Vajiram & Ravi

I.

Effective Revenue Deficit / Adjusted Revenue Deficit: Ideally revenue deficit should incorporate
revenue expenditure and receipts. But the traditional revenue deficit also includes transfer to states
and other developmental expenditure. These transfers are in the nature of capital expenditure. If we
deduct these expenditure from revenue deficit, we get effective revenue deficit.
These transfers are also called Grants for Capital Assets (GOCA) and includes funding of those
programmes which are funded by centre but implemented by states like Pradhan Mantri Gram Sadak
Yojna, JNNURM etc.
Revenue deficit for 2011-12 is about 3.4% of GDP out of GOCA is about 1.6% of GDP. Thus,
effective Revenue Deficit will just be about 1.8% of GDP.

II.

Viability Gap Fund: It is a fund to aid the Public Private Partnership (PPP) infrastructure projects
which face the viability gap due to inherent nature of the project. PPP is a partnership between a
public sector entity (sponsoring authority) and a private sector entity (a legal entity in which 51% or
more of equity is with private partner/s) for the creation and/or management of infrastructure for public
purpose for a specified period of time (concession period) on commercial terms.
The Viability Gap Funding scheme provides financial support in the form of grants to
infrastructure projects undertaken through PPP with the aim to make them commercially viable. The
scheme is administered by the Ministry of Finance.
Provision has been made to provide up to 20% of total project cost as capital grant to meet the
funding gap. An additional 20% of the project cost can also be provided by sponsoring agency/state.

III.

Transfer Pricing and Advance Pricing Agreements (APAS): Transfer pricing is the mechanism
adopted by the Multinational Enterprises for valuing the goods and services traded with their
Subsidiaries of Associate Companies abroad so as to lower taxes and to maximize profits.
The yardstick for acceptance of such transfer pricing is the Arms Length Price which should
represent the price charged in comparable transactions between independent parties, where price is
not influenced by the relationship or business interest between the parties in transaction.
The transfer pricing policies of several countries are based on the OECD (Organization of
Economic Cooperation and Development) Guidelines on the subject.
India has witnessed the occurrence of widespread transfer pricing disputes revolving around
basic issues such as use of data not available in the public domain, valuation of shares, corporate
guarantees etc. in which there is no statutory guidance. To address these disputes, Budget 2012 has
introduced Advance Pricing Agreements (APAs) in sync with the OECD countries.
APA is an advance agreement that sets transfer price of the covered transactions prospectively
between the tax payer (multinational entreprises) and tax authorities. The tax payer and the tax
authorities also mutually agree on the transfer pricing method to be applied and its application for a
certain period of time. Although the provision for APA was already included in DTC Bill, 2010, it has
also been introduced in Finance Bill 2012.

IV.

General Anti-Avoidance Rules (GAAR): Under these rules introduced in the Budget 2012-13, the
Income Tax Department will have powers to deny tax benefit if a transaction was carried out
exclusively to avoid tax. For example, if an entity is set up in Mauritius with the sole intention of
claiming exemption from capital gains tax, the tax authorities have the right to deny the claim for
exemption provided under the India-Mauritius tax treaty.