Government to issue clarifications on GAAR

The government will publish clarifications on a the general anti-avoidance rules (GAAR) that has come for big criticism from foreign companies like Vodafone Inc that has successfully avoided paying taxes anywhere over its acquisition of Hutchison's stake in Indian telecom JV Hutch-Essar.

The move to dilute provisions of the Act comes with the exit of Pranab Mukherjee from the finance ministry and the taking over of the portfolio by Prime Minister Manmohan Singh.

The finance ministry, now under the prime minister, is likely to issue a clarification circular on the retrospective amendment of section 9, CNBC-TV18 reported quoting sources.

''It is learnt that the general anti-avoidance rules (GAAR), for now, is likely headed for a cold storage and the government may push it beyond 2014 election or drop it completely,'' the report said.

Since section 9 of the Act brought in the word 'indirect transfer' of assets, it says that indirect transfer will be taxed in cases where substantial value is derived from underlying assets in India.

The finance ministry is likely to define substantial as majority interest so that inter-group transfers of international companies where the underlying assets in India may not be taxed. Also, indirect transfer of shares that are listed on a recognised stock exchange may be kept out of the tax net.