“One good thing is that they have clarified that if the limitation of benefits (LOB) clause sufficiently addresses tax avoidance, then GAAR will not apply,” Amit Maheshwari, Managing Partner, Ashok Maheshwary & Associates told The Hindu . “Most new treaties being signed are with the LOB clause. Therefore, foreign investors have clarity now. Another positive thing is that court-approved arrangements are outside the purview of GAAR.”
The clarifications partially fulfill a long-standing demand of the industry, said Rajesh H. Gandhi, Partner at Deloitte Haskins & Sells. However, “the benefit has now got diluted to a large extent because the LOB clause in the India-Singapore and Mauritius treaties is relevant only for availing the 50% tax rate for two years,” he said.
The official clarification also said that, if at the time of sanctioning an arrangement, the court had explicitly and adequately considered the tax implications, then GAAR would not apply to such an arrangement.
