Government decided to defer GAAR for two years.

Implementation of General Anti Avoidance Rules (GAAR) was turning out to be a big headache for the government. Primarily because of dwindling growth. For economic revival, a dose of foreign capital was necessary. And GAAR was detrimental to that. Basically, GAAR was aimed to check tax evasion by entities that route money to India from overseas destinations. However, this created a fear in the mind of foreign investors. Certain retrospective tax amendments were uncongenial for them. Further, it was also believed that GAAR would give huge power to tax authorities. And this dampened sentiments of foreign investors. In fact, foreign institutional investors (FIIs) registration fell for the first time in a decade in 2012 because of such controversial tax laws.

As a result, government has finally decided to defer GAAR for two years. This is a positive sign for the inflow of foreign investments. We feel that the government had little choice but to defer this law. The Indian economy is reeling at sub 6% growth. And foreign investments are key to revive growth considering that there is very little room for fiscal expansion. Thus, the delay was inevitable. However, it remains to be seen to what extent the delay can boost foreign investments.