The issue of the General Anti Avoidance Rule (GAAR) has dominated the news recently and there are fears that GAAR will discourage foreign investment in India. However, tax avoidance can hinder public finance objectives and it is in this context GAAR was introduced in this year’s Budget. Last week, the Finance Minister pushed back the implementation of GAAR by a year. What is GAAR? GAAR was first introduced in the Direct Taxes Code Bill 2010. The original proposal gave the Commissioner of Income Tax the authority to declare any arrangement or transaction by a taxpayer as ‘impermissible’ if he believed the main purpose of the arrangement was to obtain a tax benefit. The 2012-13 Finance Bill (Bill), that was passed by Parliament yesterday, defines ‘impermissible avoidance arrangements’ as an arrangement that satisfies one of four tests. Under these tests, an agreement would be an ‘impermissible avoidance arrangement’ if it (i) creates rights and obligations not normally created between parties dealing at arm’s length, (ii) results in misuse or abuse of provisions of tax laws, (iii) is carried out in a way not normally employed for bona fide purpose or (iv) lacks commercial substance. As per the Bill, arrangements which lack commercial substance could involve round trip financing, an accommodating party and elements that have the effect of offsetting or cancelling each other. A transaction that disguises the value, location, source, ownership or control of funds would also be deemed to lack commercial substance. The Bill as introduced also presumed that obtaining a tax benefit was the main purpose of an arrangement unless the taxpayer could prove otherwise. Why? GAAR was introduced to address tax avoidance and ensure that those in different tax brackets are taxed the correct amount. In many instances of tax avoidance, arrangements may take place with the sole intention of gaining a tax advantage while complying with the law. This is when the doctrine of ‘substance over form’ may apply. ‘Substance over form’ is where real intention of parties and the purpose of an arrangement is taken into account rather than just the nomenclature of the arrangement. Many countries, like Canada and South Africa, have codified the doctrine of ‘substance over form’ through a GAAR – type ruling. Issues with GAAR A common criticism of GAAR is that it provides discretion and authority to the tax administration which can be misused. The Standing Committee responded to GAAR in their report on the Direct Taxes Code Bill in March, 2012. They suggested that the provisions should ensure that taxpayers entering genuinely valid arrangements are not harassed. They recommended that the onus should be on tax authorities, not the taxpayer, to prove tax avoidance. In addition, the committee suggested an independent body to act as the approving panel to ensure impartiality. They also recommended that the assessing officer be designated in the code to reduce harassment and unwarranted litigation. GAAR Amendments On May 8, 2012 the Finance Minister amended the GAAR provisions following the Standing Committee’s recommendations. The main change was to delay the implementation of GAAR by a year to “provide more time to both taxpayers and the tax administration to address all related issues”. GAAR will now apply on income earned in 2013-14 and thereafter. In addition, the Finance Minister removed the burden upon the taxpayer to prove that the main purpose of an alleged impermissible arrangement was not to obtain tax benefit. These amendments were approved with the passing of the Bill. In his speech, the Finance Minister stated that a Committee had also been formed under the Chairmanship of the Director General of Income Tax. The Committee will suggest rules, guidelines and safeguards for implementation of GAAR. The Committee is expected to submit its recommendations by May 31, 2012 after holding discussions with various stakeholders in the debate.
As of May 4, 2020, there are 42,533 confirmed cases of COVID-19 in India. Since April 27, 14,641 new cases have been registered. Out of the confirmed cases so far, 11,707 patients have been cured/discharged and 1,373 have died. As the spread of COVID-19 has increased across India, the central government has continued to announce several policy decisions to contain the spread, and support citizens and businesses who are being affected by the pandemic. In this blog post, we summarise some of the key measures taken by the central government in this regard between April 27 and May 4, 2020.
Source: Ministry of Health and Family Welfare; PRS.
Lockdown
Extension of lockdown until May 18, 2020
The Ministry of Home Affairs passed an order extending the lockdown for two weeks from May 4, 2020 (until May 18, 2020). Activities that remain prohibited in the extended lockdown include:
Travel and movement: Passenger movement by: (i) air (except for medical and security purposes), (ii) trains (except for security purposes), (iii) inter-state buses (unless permitted by central government), and (iv) metro, remains prohibited. Inter-state movement of individuals is also prohibited except for medical reasons or if permitted by the central government. Intra-state movement of persons for all non-essential activities will remain prohibited between 7pm and 7am.
Education: All educational institutions such as schools and colleges will remain closed except for online learning.
Hospitality services and recreational activities: All hospitality services such as hotels will remain closed except those being used as quarantine facilities, or those housing persons such as healthcare workers, police, or stranded persons. Further, recreational facilities such as cinemas, malls, gyms, and bars will remain closed.
Religious gatherings: All religious spaces will remain closed and congregation for religious purposes will remain prohibited.
The revised guidelines for the lockdown include risk-profiling of districts into red, green and orange zones. Zone classifications will be decided by the Ministry of Health and Family Welfare and shared with states on a weekly basis. States may include additional districts as red or orange zones. However, they may not lower the classification of any district. For a district to move from a red zone to an orange zone, or from an orange zone to a green zone, it must have no new cases for 21 days. Classification of and activities permitted in the zones include:
Red zones or hotspots: These districts will be identified based on the total number of active cases, doubling rate of confirmed cases, and testing and surveillance feedback. Additional activities prohibited in red zones include: (i) cycle and auto rickshaws, (ii) taxis, (iii) buses, and (iv) barber shops, spas and salons. Activities that are permitted include: (i) movement of individuals (maximum two persons in four wheelers, and one person in two wheelers), (ii) all industrial establishments in rural areas and certain industrial establishments in urban areas such as manufacturing of essential goods, and (iii) all standalone and neighbourhood shops.
Green zones: These zones include districts with no confirmed cases till date or no confirmed cases in the last 21 days. No additional activities are prohibited in these zones. In addition to activities permitted in red zones, buses can operate with up to 50% seating capacity.
Orange zones: These zones include all districts that do not fall in either red or green zones. Inter and intra-state plying of buses is prohibited in these zones. Activities that are permitted (in addition to those permitted in red zones) include: (i) taxis with a maximum of one driver and two passengers, (ii) inter-district movement of individuals and vehicles for permitted activities, and (iii) four wheeler vehicles with a maximum of one driver and two passengers.
Certain areas within red and orange zones will be identified as containment zones by the district administration. Containment zones may include areas such as residential colonies, towns, or municipal wards. In containment zones, local authorities must ensure 100% coverage of Aarogya Setu App, contract tracing, quarantine of individuals based on risk, and house to house surveillance. Further, movement of persons in or out will be prohibited except for medical emergencies and essential goods, amongst other measures.
Movement of stranded persons
The Ministry of Home Affairs has permitted the movement of migrant workers, pilgrims, tourists, students, and other stranded persons, by special trains. To facilitate this, all states and union territories will designate nodal authorities for sending, receiving, and registering stranded persons. The state sending persons and the state receiving persons both need to agree to the exchange. Each train can carry up to 1,200 persons and no train may run at less than 90% capacity. Passengers approved for travel by the state governments may be required to pay some part of the ticket fare.
Education
UGC issues guidelines on examinations and the academic calendar for universities
The University Grants Commission (UGC) issued guidelines on examinations and the academic calendar for universities in view of the COVID-19 pandemic.
Academic Calendar: Classes for the even semester in universities were suspended from March 16, 2020 onwards. The guidelines prescribe that online teaching must continue till May 31 through social media (WhatsApp / YouTube), emails, or video conferencing. The examinations for the current academic year should be held in July, 2020 and the results for the same should be declared by July 31 (for terminal year students) and by August 14 (for intermediate year students)
The Academic Session 2020-21 may commence from August 2020 for old students and from September 2020 for fresh students. The admission process for the fresh students can be done in August. Consequently, the commencement of even semester for 2020-21 can be from January 27, 2021. The commencement of academic session 2021-22 may be from August 2021. The universities may follow a 6-day week pattern to compensate the loss of teaching for the remaining session of 2019- 20 and the 2020-21 academic session.
Examination: The universities may conduct semester or yearly examinations in offline or online mode. This has to be done while observing the guidelines of “social distancing” and ensuring fair opportunity for all students. They may adopt alternative, simplified methods of examinations such as multiple choice questions based examinations or open book examination. If examinations cannot be conducted in view of the prevailing situation at the time, grading may be done on the basis of internal assessments and performance in previous semester. The universities may conduct the Ph.D viva examinations through video conferencing.
Other guidelines: Every University should establish a COVID-19 cell for handling student grievances related to examinations and academic activities during the pandemic and notify effectively to the students. Further, a COVID-19 cell will be created in the UGC for faster decision making.
For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.
