The Prime Minister-appointed panel, headed by Parthasarathi Shome, has also pushed for extending the deadline for implementation of the rules by three years. According to earlier recommendations, the guidelines were to come into effect from April 2013.
The draft recommendations were submitted to finance minister P Chidambaram today. They have now been placed for public comments until September 15.
General Anti-Avoidance Rules (GAAR) is the central theme of the Direct Tax Code (DTC), but the government made it a part of the Budget this fiscal. This means that even if DTC gets deferred further, the government may implement GAAR from the next fiscal itself.
The finance ministry has received a lot of criticism over GAAR, which was announced by then finance minister Pranab Mukherjee in the 2012-13 General Budget in March.
Markets and investors reacted negatively, with the quantum of money invested through Participatory Notes (P-notes) hit rock-bottom levels of just about 10 per cent of total FII, which used to be more than 50 per cent a few years ago. Data released in June showed that rich overseas entities, investing in Indian markets through participatory notes, were estimated to have pulled out over Rs 1 lakh crore in less than three months on fears of getting caught in the government's taxation net.
However, deferment of GAAR provided a much-needed boost to the equity markets as well as the rupee. The Sensex wiped out a loss of over 300 points, while the Nifty was firmly above the 5,000 mark. The rupee rose to a one week high of 52.68.
Moreover, markets cheered when P Chidambaram took over reign as the finance minister after Pranab Mukherjee left the post for Presidential elections. In the last one month, BSE Sensex index is up 1.65 per cent, inching closer to the 18,000 mark.
Meanwhile, foreign institutional investors have injected a $ 11.3bn in Indian equities in 2012 so far, the highest year-to-date (January to August 2012) in any year.
Here are the other recommendations by the panel:
- Grandfathering investments till GAAR comes into force
- Abolishishing capital gains tax on FIIs
- Hike in securities transaction tax (STT) rate
- Mauritius circular 789 should remain
- Threshold of Rs 3 crore for not invoking GAAR