GAAR stands for General Anti-Avoidance Rule. This has been frequently in the headlines every now and then capturing everyone’s attention. GAAR in simple terms means one should avoid entering into an agreement with tax benefits in mind. There is also a notion that implementation of GAAR could have a negative impact on the markets.
- There are a number of companies today converting to Limited Liability Partnership (LLP) where they can experience tax benefits with lower tax rate, Minimum Alternative Rate (MAT) etc. Introduction of GAAR would have adverse effects on these companies if the agreement is not bonafide for commercial purposes.
- There are number of cross-mergers like foreign companies taking over Indian companies and vice-versa. This may cause a doubt among foreign investors.
- Foreign Institutional Investors were the net buyers in the beginning months of 2012 but now they have transformed into sellers because of the high level of uncertainty about their investments.
- The investments made in the Mauritius route may also come under the GAAR scanner. Uncertainty among foreign investors would leave a big impact on the economy. Lesser investments in markets mean less revenue.
The fear of GAAR has even brought down the SENSEX points. The recent decision by the Government to defer the implementation of GAAR saw the SENSEX scaling to a 2-year peak.
To know more about the effects of GAAR on markets, click here.