A STUDY ON IMPACT OF GENERAL ANTIAVOIDANCE RULES (GAAR) IN INDIA IN THE GROWTH OF FIIs INVESTMENT IN DEBT MARKET . By B Srinivasan, M.

com, MBA,IRAS, . Dy. Financial Adviser and Chief Accounts officer and Research Scholar, Madras University & Dr.R.RANGARAJAN, M.com, MBA(Finance),M.phil and P.hd. Associate Professor Department of Commerce, University of Madras

Government of indias proposed implementation of General Anti-avoidance rules have sent serious message to all foreign investors and have created fear in their mind and is likely to have a serious impact on such investments. The main aim of this research is to measure the impact of GAAR and risk involved in the growth of debt purchases, debt sales of FIIs in Indian capital market. This empirical paper measures the fluctuation risk in the volatile Indian capital market.

FINDINGS AND CONCLUSION. High consistent approach of FIIs is noticed towards the debt and investments to avoid risk in investment. Study of literature on GAAR reveal that Indian companies have to pay about 10% more in the raising of capital, as GAAR implementation is likely to affect investments by FIIs. The study also reveals that the strength of Indian Economy is due to capital flows arising from the Foreign Institutional Investors Investment with excellent management of investment risk. Government of India though have assured that genuine . FIIs will not be subjected to GAAR, the fear in the minds of FIIs are still to be cleared. This have also been brought out in the committees report which have recommended for postponement of implementation of GAAR. It is suggested that Government of India while implementing GAAR shall ensure that the confidence of FII investors is not affected as they are one of the key players in the development of Indian economy

Status As on 24/11/2012
The government yesterday have said it is examining recommendations of the Shome committee which suggested postponement of the General AntiAvoidance Rules ( GAAR ) by three years and non-application of tax laws with retrospective effect on indirect transfers of assets. "The recommendations of the Committee are under examination by the Government," Minister of State for Finance S S Palanimanickam told the Rajya Sabha in a written reply. Committee headed by tax expert Parthasarathi Shome, set up by the government, has submitted two reports -- on GAAR and retrospective amendments relating to indirect transfers. In its report on GAAR, the Minister said the Panel has recommended implementation of this advance instrument of tax administration may be deferred by three years on administrative grounds till 2016-17.

Amid widespread concerns over GAAR, the government had deferred its implementation till April 1, 2013.
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Status As on 24/11/2012
The Shome panel, among other things, has also suggested abolition of tax on gains arising from transfer of securities, which is subject to securities transaction tax (STT). It had also suggested that GAAR should not be invoked in intra-group transactions. It further said that a monetary threshold of Rs 3 crore of tax benefit should be fixed while applying the provision. Regarding foreign institutional investors (FIIs), the report suggested that if they choose not to take any benefit under India's DTAA s, then the provisions should not be applied. The four-member panel in its report on retrospective amendments said that the provisions "should be applied prospectively". Noting that there are number of pending tax disputes over indirect transfer, the panels said this is also a matter that needs to be addressed. "One way to solve pending disputes is...Through conciliation, which is a well recognised method of dispute resolution. Arbitration may not be the best option when resolution is the objective," the committee had said. The retrospective amendments were aimed at bringing under tax net Vodafone type deals. The report on GAAR had also recommended that where the circular number 789 of 2000 with respect to Mauritius is applicable, the GAAR provisions should not be applied to examine the genuineness of the residency of an entity set up in that country