The much-awaited resolution to the issue of General Anti-Avoidance Agreement (GAAR) has finally arrived. The relaxation on the controversial GAAR front, coupled with the rupee hovering at around Rs 53 per dollar level, would present the FIIs with a lucrative opportunity to re-enter the Indian equity markets.
The much-awaited resolution to the issue of General Anti-Avoidance Agreement (GAAR) (refer to the article titled ‘Understanding The GAAR Effect’ on our website for an explanation) has finally arrived. Finance Minister Pranab Mukherjee today announced in the parliament that GAAR would become effective from April 2013 as against the proposed previous applicability from this fiscal i.e. from April 2012.
This announcement helped the markets to stage a quick turnaround over the last couple of trading sessions though they had opened in the red due to last week’s losses and weak global cues. Those investors who had been playing the field with a ‘wait and watch’ strategy now turned to buying, resulting in the broader indices closing higher by almost around 0.50 per cent.
According to the media reports, the following are the key points which should be taken into consideration by the investors:
• GAAR implementation has been deferred by one year and it will now be applicable from FY14 i.e. from April 2013.
• The proposed retrospective amendments will not be applicable for cases where the assessment is final.
• Removal of onus of proof from the tax payer.
• It has also proposed STT of 0.2 per cent on sale of unlisted tax securities and halved the capital gain tax on private equity from 15 per cent to 10 per cent.
The above move from the FM has given a positive impetus to the markets. The relaxation on the controversial GAAR front, coupled with the rupee hovering at around Rs 53 per dollar level, would present the FIIs with a lucrative opportunity to re-enter the Indian equity markets. However, from a long-term point of view, the markets would await further clarity from the government on its various other tax issues and some positive momentum on the reforms front.