This story first appeared in DNA Money edition on Tuesday, May 8, 2012.
The government’s decision to defer General Anti-Avoidance Rules (Gaar) by a year will give private equity (PE) and venture capital (VC) firms enough time to adapt to its provisions.
Industry players said the major concern for PE / VC fraternity (from the Gaar provisions) was from the commercial substance in the jurisdiction in which they were resident.
“Now they will have the time to establish that substance,” said Mahendra Swarup, president, India Venture Capital Association - an apex body of PE and VC firms in India.
The taxation part in Gaar, Swarup said, was also healthy as the regulator now says if any investment firm does get caught up in the Gaar non-compliance then the maximum tax that needs to be paid is 10% and not 20%.
“It is only from next year that the investors will have to pay 30% if they are non-compliant with Gaar. The zero-tax arrangement continues for all investments that are Gaar-compliant.”
“There is time available for investment firms to become GAAR compliant. There will be no impact on the funds’ inflow from the PE / VC community going forward.”
Stating that the PE / VC community was never against implementation of Gaar, Swarup said the way it was being implemented was disturbing as it took everyone by surprise.
“The government has assured that it will not be retrospective as long as the assessment is over which basically means no reopening of assessments,” he said.
The government’s decision to defer General Anti-Avoidance Rules (Gaar) by a year will give private equity (PE) and venture capital (VC) firms enough time to adapt to its provisions.
Industry players said the major concern for PE / VC fraternity (from the Gaar provisions) was from the commercial substance in the jurisdiction in which they were resident.
“Now they will have the time to establish that substance,” said Mahendra Swarup, president, India Venture Capital Association - an apex body of PE and VC firms in India.
The taxation part in Gaar, Swarup said, was also healthy as the regulator now says if any investment firm does get caught up in the Gaar non-compliance then the maximum tax that needs to be paid is 10% and not 20%.
“It is only from next year that the investors will have to pay 30% if they are non-compliant with Gaar. The zero-tax arrangement continues for all investments that are Gaar-compliant.”
“There is time available for investment firms to become GAAR compliant. There will be no impact on the funds’ inflow from the PE / VC community going forward.”
Stating that the PE / VC community was never against implementation of Gaar, Swarup said the way it was being implemented was disturbing as it took everyone by surprise.
“The government has assured that it will not be retrospective as long as the assessment is over which basically means no reopening of assessments,” he said.
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