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The Finance Ministry on Wednesday said that the General Anti-Avoidance Rules (GAAR) will override the provisions of the double tax avoidance agreement, in case of any abuse.
“GAAR being anti-abuse provision can prevail over the treaty if it is proved that it is an abuse of treaty. With the Limitation of Benefit clause in the treaty being fulfilled, it may be difficult to establish that the treaty is being misused,” said Revenue Secretary Hasmukh Adhia in a series of tweets.
Plugging loopholesHis comments come a day after India and Mauritius agreed to plug a major loophole in the Double Tax Avoidance Agreement (DTAA) that would allow India to impose capital gains tax on shares sold in Indian companies post April 2017. As the name suggests, the Limitation of Benefit clause would restrict tax benefits to only those who meet certain conditions relating to business, residency and investment.
A number of tax experts had raised the question on what would happen to the exemptions under the India-Mauritius DTAA with the introduction of GAAR from April 1, 2017.
GAAR contains provision allowing the government to prospectively tax overseas deals involving local assets, leading to apprehensions that the government may use it to target Participatory Notes.
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