The Union Finance Minister Pranab Mukherjee today presented the Union Budget 2012-13. Bar & Bench spoke to tax experts to get their reactions on the Union Budget 2012..The Union Finance Minister Pranab Mukherjee today presented the Union Budget 2012-13. Bar & Bench spoke to tax experts to get their reactions on the Union Budget 2012..Aseem Chawla, Tax Partner at Amarchand Mangaldas .The proposals do provide a significant focus on tax compliance with measures proposed to prevent generation and circulation of unaccounted monies, rationalization of penalties/search provisions, stricter measures of taxation and expeditious prosecution proceedings. Therefore, the Finance Bill places onerous obligations not only on the taxpayers but also at the same time places a significant burden on the tax administration system to act in a fair manner and not to over indulge in exercising such plenary powers with which it has been vested coupled with sweeping discretion. Although the revenue collection and the shortfall of direct taxes collection may require the tax authorities to act in a little more stringent manner however, it has been lately seen that such powers have been over utilized in an unfair detrimental manner to the taxpayer community at large..The tax proposals do walk a very a tight rope in balancing the measures augmenting tax collection and yet do not encourage incentive to pay tax. Therefore, to that extent the general overwhelming response is not very forward-looking. The proposed legislative reforms of introducing Direct Taxes Code (DTC) bill have not been ruled out. In fact the ministry officials including the Finance Minister do believe that DTC will be effective by 2013. Also, considering the fact that direct tax collection has always been a challenge in the recent past. The wing span of source based taxation which has been championed by many developing countries including India does suggest the fact that the boundaries of territorial application of tax laws are being pushed and the most notable instance is the retrospective amendment proposed to tax indirect transfers of shares and interest and therefore to overturn the recent pragmatic decision of the apex court in Vodafone case..The other proposals do include significant shift in areas of taxation of royalties, rationalisation of transfer pricing provisions to further widen its application. The extra-territorial application of Income Tax Act, 1961 (the Act) which has always been a contentious matter, has been given further fillip with such collective tax proposals, which do indicate the fact that the policy makers are not hesitant in pushing the frontiers of tax base..The most notable proposal affecting cross border investment is seemingly the usurpation of the Vodafone Supreme Court tax case. The cumulative tax proposal with regard to amendments proposed in Section 9 and in the definition of ‘capital asset’ and ‘transfer’ and its perceived impact in general anti avoidance reguation (GAAR) proposal thus suggest that the Vodafone tax case has been a significant influencing factor in formulating Budget 2012..The introduction of GAAR is a prelude to DTC. The DTC did envisage legislative anti avoidance framework. So far India has relied on Judicial Anti Avoidance framework, where the Judiciary has by virtue of application of past precedents have analyzed whether a transaction is solely motivated by tax consideration and lacks commercial substance otherwise. However, with the introduction of a legislative GAAR framework which many developed countries do have, a significant discretion would get vested with the tax authorities while analyzing business transaction in determining the economic rationale thereof. Unless such discretion is exercised fairly in a meaning ful manner, it might result in unfair tax consequences of business transaction, which at the first place may have been legitimate i.e. in accordance with law. There is a very strong apprehension in the investor community that the GAAR framework would not be applied in a fair manner but since these are being introduced for the first time therefore, the future shall behold with regard to application of such anti avoidance regulation..On the transfer pricing regulations front, many amendments have been proposed not only to bring domestic transactions within the fold of transfer pricing regulations but also amendments have been proposed in allowing revenue department to appeal against the order passed by the dispute resolution panel (DRP) which might not in any way curtail the ever increasing trend of transfer pricing litigation. However, a balancing act may be achieved with the introduction of advance pricing agreement (APA), which has been proposed by the Financial Bill 2012..On tax incentives and reliefs, enough has not been done. Incentivization of infrastructure in providing tax concessions is still a step remote..Some rationalization has taken place in the cascading effect of dividend distribution tax. One would have otherwise expected the proposal forthcoming to provide much needed boost to the manufacturing sector considering the sluggish growth as indicated by recent IIP numbers. Now the same may be dealt with the implementation of National Manufacturing Policy..There has been some reduction in securities transaction tax although widely it was anticipated that it would be done away with..Gagan Kumar, Tax Partner at Archer & Angel.My first reaction is that the Finance Minister has attempted to fund the various socialistic policies announced in his speech with tinkering with the basic taxation rates..Considering that the ruling party did not fare well in the recent state elections the government has refrained from taking any drastic steps, however, at the same time it has paved the way to recover substantial amount of taxes from international taxation by making amendments with retrospective effect and effectively mitigating the consequences of the recent judgment of Hon’ble Supreme Court in the case of Vodafone International B.V. However, it would require further analysis that amendment by way of insertion of an Explanation would withstand the test of judicial scrutiny..The other major amendment is enlarging the definition of ‘international transaction’ under the transfer pricing rulesto inter alia include marketing intangibles which is a major point of litigation in case of most of the multinationals working through their wholly owned subsidiaries in India..The finance bill also envisages introduction of transfer pricing rules in case of domestic transactions as well..Introduction of General Anti Avoidance Rules (GAAR) in the Income Tax Act has come on expected lines..A welcome move is to introduce Advance Pricing Agreements (APA) in the domestic tax law. In the nut shell the proposal aim to bring certainty in the tax laws while enlarging the scope of taxation on the transactions which were hitherto were not taxable because of the literal interpretation adopted by courts. I don’t see any significance of introducing Direct Tax Code, as most of the critical provisions of DTC Bill have seeped into the existing Income Tax Act, 1961 itself..Another significant tax proposal is introduction of negative list in Service tax law and definition of the term ‘Service’. These amendments will have far reaching impact on the Service sector in the coming times..Nitin Potdar, Partner at JSA.Though the Budget has done well by focusing on Infrastructure and deepening of Capital market which would certainly support the India Growth story, I wish that the Finance Minister could have boldly gone ahead and opened up the Aviation sector by permitting foreign airlines to invest in India.Sanjeev Sachdeva, Indirect Tax Partner at Luthra .In the area of Indirect taxes, the most significant change announced in the Budget today is regarding the introduction of a negative list of services. This is significant because, on the one hand, it would widen the tax base by making all but the negative services, leviable to Service Tax, and, on the other, signifies the resolve of the Union Government to introduce the Good & Services Tax (GST). Preliminary reading of the Budget papers indicates that considerable thought has gone into the concept of negative list of services. It is hoped that the Government would further fine tune these before implementing the changes in due course..As regards Service tax on “legal services”, the present position is that all service provided by an individual practitioner to another individual are not taxable. Representational services provided by an individual to a business entity are taxable; however, advisory services provided by an individual to a business entity are not taxable. Under the proposed dispensation, that all services provided by an advocate to an individual would be exempt from Service Tax. All services provided by an advocate to a business entity would be taxable; however, the tax would be payable by the business entity under the reverse charge mechanism. This means that an individual advocate would never have the liability to pay Service Tax, and consequently, he would not have to comply with the procedural requirements under the Service Tax regime. Services provided by an arbitral tribunal would also be exempt, as, in fact, they are at present..It would be equally necessary for the Government to take a similar broad view for the purposes of allowing CENVAT credit in respect of the Service Tax paid on “input services”. The last Budget (2011) was retrograde in some respects in as much as it had sought to restrict the meaning of “input services” eligible for CENVAT credit, much against the emerging judicial precedents. It is important that the concept of negative list is introduced along with an equally broad view of allowing CENVAT credit on all services. Otherwise, there would be cascading effect of the taxes, and only a half-hearted move towards the introduction of GST..Some of the procedural changes like common registration and periodic returns for Central Excise and Service Tax are also welcome, and positive, steps..The changes in Central Excise basically involve raising the duty rates across the board. This may not be seen positively by the industry in the prevailing economic scenario. Some of the specific exemptions and concessions announced also do not reflect any significant policy moves aimed at giving a fillip to any particular industry or sector..On the Customs front, perhaps the only positive is that the rates have been largely left untouched!.Vineet Aneja, Partner at Clasis Law.It is not a breakthrough or a reformist budget, although the finance minister has given some relief to individual taxpayers, there are no goodies for the corporate sector except for the proposal of the cascading effect of tax on dividend being eliminated. In fact the amendments and clarifications provided in Finance Bill No 31 have burden the corporate sector to rethink and restructure their midway cross border transactions, which were decided after the Vodafone judgment. It looks to be a reasonable budget..S.R. Patnaik, Partner Direct Tax at Luthra & Luthra .Tax provisions for individuals .The Budget 2012-13 has provided marginal relief to individual tax-payers. The tax exemption limit has been fixed at Rs. 200,000 for both male and female individual taxpayers. Furthermore, there is a slight revision in slabs. Incomes between Rs. 200,001 to Rs. 500,000 will be taxed at 10% while incomes between Rs. 500,001 to 10,00,000 will be taxed at 20%. Income above Rs. 10,00,000 will be taxed at 30%.It has also been proposed to increase the threshold limit (gross receipts) for audit of accounts of professionals. The threshold limit is proposed to be increased to Rs. 25 lakhs from Rs. 15 lakhs from 1st April, 2013. This would ease up compliances for a number of professionals..Tax exemption is also proposed to be provided for investment under Rajiv Gandhi Equity Saving Scheme for 50% of investment (maximum investment of Rs. 50,000 for a period of 3 years) for individuals with income below Rs. 10 lakhs..International Taxation.The loss before the Hon’ble Supreme Court in the case of Vodafone seems to have prompted introduction of a number of clarificatory amendments. However, unfortunately for the taxpayers, many of these changes have been introduced with retrospective effect with some going as back as 1962..The definition of ‘property’ in Section 2(14), definition of ‘transfer’ under Section 2(47) and Section 9 have been proposed to be amended so as to bring to tax transfer of shares or other proprietary interest situated outside India if the value of such shares or interest derives substantially from assets situated in India. This amendment is similar to the provisions in proposed Direct Taxes Code. The term ‘substantially’ has not been defined and is open to varied subjective interpretation..Furthermore, it has been clarified that non-residents are covered under the scope of Section 195 and are liable to deduct tax irrespective of whether such non-residents have a place of residence, business, business connection or any presence in India..These amendments have been introduced in light of the Vodafone decision. These amendments are retrospective in nature and it would be very interesting to see how the Hon’ble Supreme Court deals with these changes while hearing the Review Petition filed by the Government in the case of Vodafone..Retrospective clarification is also proposed to be introduced to cover transponder payments and software license fees.. Transfer Pricing .Significant changes have been brought about in the transfer pricing regime. In fact the very definition of ‘international transaction’ has been amended with retrospective effect to include restructuring transactions taken within enterprises belonging to a group. Furthermore, now even certain domestic transactions will be subject to the transfer pricing provisions..The Budget also proposes to introduce Advance Price Agreements (“APA”) which is expected to bring down litigation pertaining to Transfer Pricing to certain extent..In specific cases, even pure domestic transactions are proposed to be brought under the Transfer Pricing regime.. Tax withholding.It is also proposed to introduce tax withholding at the rate of 1% of sale consideration on immovable property (other than agricultural land) over certain prescribed limits. There was no withholding liability on domestic real estate transactions prior to this amendment..Other Proposals.It is proposed to tax share premium received by closely held companies in their hands in excess of fair market value from residents. An exception is proposed to be made in case of receipts from venture capital funds..It is proposed to extend alternate minimum tax to all persons subject to certain threshold limits..Cascading effect of Dividend Distribution Tax in multi-tier structures is proposed to be removed..A number of tax avoidance measures have been introduced. Many transactions are now subject to withholding thereby necessitating reporting of such transactions..It is proposed to extend the time limit for issue of notice for reopening an assessment from 6 years to 16 years, where the income in relation to any asset (including financial interest in any entity) located outside India and chargeable to tax has escaped assessment..In addition to the provision of various specific anti-avoidance measures, the budget also proposes to introduce General Anti-Avoidance Rules (“GAAR”). The GAAR would deem certain arrangements with the dominant purpose to obtain a tax benefits and satisfying any of the other specified requirements as impermissible avoidance arrangements. These other requirements include lack of commercial substance, misuse or abuse of tax provisions, lack of bona fides etc. It is proposed that factors like period of existence of arrangement, tax generated through the arrangement etc. should not be relevant in determining the commercial substance of the arrangement. It must be noted that factors like these were considered relevant for determining commercial substance of a particular transaction in Vodafone..Freddy Daruwala, Partner at Nasikwala Law Office.It is apparent that the budget seeks to take away more by indirect taxes , than give by way of concessions in direc t taxes and is inflationary. It also seeks to introduce the Direct Taxes Code (DTC) through the back door and totally disregards the Parliamentary standing committee report in respect of the same..In the words of Shakespeare’s Hamlet which the FM has quoted one can further add that the taxpayer (especially an international taxpayer) “Will face the slings and arrows of outrageous (tax) fortunes and be faced with a sea of (tax) troubles”.Some of the other important features of the budget are:.Drastic, far reaching changes in International and Cross border taxationTransfer pricing provisions applicable to domestic transactions between associated enterprises with threshold of INR 5 crVodafone sought to be taxed by draconian retrospective amendments to Section 9 dealing with income deemed to accrue/arise in India (and corresponding amendments to definitions and Withholding tax sections).Introduction of General Anti- Avoidance Rule( GAAR) which seeks to override tax treatiesWithholding tax provisions applicable even to non-residents on payments to non-residents even if there is no direct nexus with India.Resources:.Finance Bill.Budget Speech: PDF Format.(photo: openmarkets.in)
The Union Finance Minister Pranab Mukherjee today presented the Union Budget 2012-13. Bar & Bench spoke to tax experts to get their reactions on the Union Budget 2012..The Union Finance Minister Pranab Mukherjee today presented the Union Budget 2012-13. Bar & Bench spoke to tax experts to get their reactions on the Union Budget 2012..Aseem Chawla, Tax Partner at Amarchand Mangaldas .The proposals do provide a significant focus on tax compliance with measures proposed to prevent generation and circulation of unaccounted monies, rationalization of penalties/search provisions, stricter measures of taxation and expeditious prosecution proceedings. Therefore, the Finance Bill places onerous obligations not only on the taxpayers but also at the same time places a significant burden on the tax administration system to act in a fair manner and not to over indulge in exercising such plenary powers with which it has been vested coupled with sweeping discretion. Although the revenue collection and the shortfall of direct taxes collection may require the tax authorities to act in a little more stringent manner however, it has been lately seen that such powers have been over utilized in an unfair detrimental manner to the taxpayer community at large..The tax proposals do walk a very a tight rope in balancing the measures augmenting tax collection and yet do not encourage incentive to pay tax. Therefore, to that extent the general overwhelming response is not very forward-looking. The proposed legislative reforms of introducing Direct Taxes Code (DTC) bill have not been ruled out. In fact the ministry officials including the Finance Minister do believe that DTC will be effective by 2013. Also, considering the fact that direct tax collection has always been a challenge in the recent past. The wing span of source based taxation which has been championed by many developing countries including India does suggest the fact that the boundaries of territorial application of tax laws are being pushed and the most notable instance is the retrospective amendment proposed to tax indirect transfers of shares and interest and therefore to overturn the recent pragmatic decision of the apex court in Vodafone case..The other proposals do include significant shift in areas of taxation of royalties, rationalisation of transfer pricing provisions to further widen its application. The extra-territorial application of Income Tax Act, 1961 (the Act) which has always been a contentious matter, has been given further fillip with such collective tax proposals, which do indicate the fact that the policy makers are not hesitant in pushing the frontiers of tax base..The most notable proposal affecting cross border investment is seemingly the usurpation of the Vodafone Supreme Court tax case. The cumulative tax proposal with regard to amendments proposed in Section 9 and in the definition of ‘capital asset’ and ‘transfer’ and its perceived impact in general anti avoidance reguation (GAAR) proposal thus suggest that the Vodafone tax case has been a significant influencing factor in formulating Budget 2012..The introduction of GAAR is a prelude to DTC. The DTC did envisage legislative anti avoidance framework. So far India has relied on Judicial Anti Avoidance framework, where the Judiciary has by virtue of application of past precedents have analyzed whether a transaction is solely motivated by tax consideration and lacks commercial substance otherwise. However, with the introduction of a legislative GAAR framework which many developed countries do have, a significant discretion would get vested with the tax authorities while analyzing business transaction in determining the economic rationale thereof. Unless such discretion is exercised fairly in a meaning ful manner, it might result in unfair tax consequences of business transaction, which at the first place may have been legitimate i.e. in accordance with law. There is a very strong apprehension in the investor community that the GAAR framework would not be applied in a fair manner but since these are being introduced for the first time therefore, the future shall behold with regard to application of such anti avoidance regulation..On the transfer pricing regulations front, many amendments have been proposed not only to bring domestic transactions within the fold of transfer pricing regulations but also amendments have been proposed in allowing revenue department to appeal against the order passed by the dispute resolution panel (DRP) which might not in any way curtail the ever increasing trend of transfer pricing litigation. However, a balancing act may be achieved with the introduction of advance pricing agreement (APA), which has been proposed by the Financial Bill 2012..On tax incentives and reliefs, enough has not been done. Incentivization of infrastructure in providing tax concessions is still a step remote..Some rationalization has taken place in the cascading effect of dividend distribution tax. One would have otherwise expected the proposal forthcoming to provide much needed boost to the manufacturing sector considering the sluggish growth as indicated by recent IIP numbers. Now the same may be dealt with the implementation of National Manufacturing Policy..There has been some reduction in securities transaction tax although widely it was anticipated that it would be done away with..Gagan Kumar, Tax Partner at Archer & Angel.My first reaction is that the Finance Minister has attempted to fund the various socialistic policies announced in his speech with tinkering with the basic taxation rates..Considering that the ruling party did not fare well in the recent state elections the government has refrained from taking any drastic steps, however, at the same time it has paved the way to recover substantial amount of taxes from international taxation by making amendments with retrospective effect and effectively mitigating the consequences of the recent judgment of Hon’ble Supreme Court in the case of Vodafone International B.V. However, it would require further analysis that amendment by way of insertion of an Explanation would withstand the test of judicial scrutiny..The other major amendment is enlarging the definition of ‘international transaction’ under the transfer pricing rulesto inter alia include marketing intangibles which is a major point of litigation in case of most of the multinationals working through their wholly owned subsidiaries in India..The finance bill also envisages introduction of transfer pricing rules in case of domestic transactions as well..Introduction of General Anti Avoidance Rules (GAAR) in the Income Tax Act has come on expected lines..A welcome move is to introduce Advance Pricing Agreements (APA) in the domestic tax law. In the nut shell the proposal aim to bring certainty in the tax laws while enlarging the scope of taxation on the transactions which were hitherto were not taxable because of the literal interpretation adopted by courts. I don’t see any significance of introducing Direct Tax Code, as most of the critical provisions of DTC Bill have seeped into the existing Income Tax Act, 1961 itself..Another significant tax proposal is introduction of negative list in Service tax law and definition of the term ‘Service’. These amendments will have far reaching impact on the Service sector in the coming times..Nitin Potdar, Partner at JSA.Though the Budget has done well by focusing on Infrastructure and deepening of Capital market which would certainly support the India Growth story, I wish that the Finance Minister could have boldly gone ahead and opened up the Aviation sector by permitting foreign airlines to invest in India.Sanjeev Sachdeva, Indirect Tax Partner at Luthra .In the area of Indirect taxes, the most significant change announced in the Budget today is regarding the introduction of a negative list of services. This is significant because, on the one hand, it would widen the tax base by making all but the negative services, leviable to Service Tax, and, on the other, signifies the resolve of the Union Government to introduce the Good & Services Tax (GST). Preliminary reading of the Budget papers indicates that considerable thought has gone into the concept of negative list of services. It is hoped that the Government would further fine tune these before implementing the changes in due course..As regards Service tax on “legal services”, the present position is that all service provided by an individual practitioner to another individual are not taxable. Representational services provided by an individual to a business entity are taxable; however, advisory services provided by an individual to a business entity are not taxable. Under the proposed dispensation, that all services provided by an advocate to an individual would be exempt from Service Tax. All services provided by an advocate to a business entity would be taxable; however, the tax would be payable by the business entity under the reverse charge mechanism. This means that an individual advocate would never have the liability to pay Service Tax, and consequently, he would not have to comply with the procedural requirements under the Service Tax regime. Services provided by an arbitral tribunal would also be exempt, as, in fact, they are at present..It would be equally necessary for the Government to take a similar broad view for the purposes of allowing CENVAT credit in respect of the Service Tax paid on “input services”. The last Budget (2011) was retrograde in some respects in as much as it had sought to restrict the meaning of “input services” eligible for CENVAT credit, much against the emerging judicial precedents. It is important that the concept of negative list is introduced along with an equally broad view of allowing CENVAT credit on all services. Otherwise, there would be cascading effect of the taxes, and only a half-hearted move towards the introduction of GST..Some of the procedural changes like common registration and periodic returns for Central Excise and Service Tax are also welcome, and positive, steps..The changes in Central Excise basically involve raising the duty rates across the board. This may not be seen positively by the industry in the prevailing economic scenario. Some of the specific exemptions and concessions announced also do not reflect any significant policy moves aimed at giving a fillip to any particular industry or sector..On the Customs front, perhaps the only positive is that the rates have been largely left untouched!.Vineet Aneja, Partner at Clasis Law.It is not a breakthrough or a reformist budget, although the finance minister has given some relief to individual taxpayers, there are no goodies for the corporate sector except for the proposal of the cascading effect of tax on dividend being eliminated. In fact the amendments and clarifications provided in Finance Bill No 31 have burden the corporate sector to rethink and restructure their midway cross border transactions, which were decided after the Vodafone judgment. It looks to be a reasonable budget..S.R. Patnaik, Partner Direct Tax at Luthra & Luthra .Tax provisions for individuals .The Budget 2012-13 has provided marginal relief to individual tax-payers. The tax exemption limit has been fixed at Rs. 200,000 for both male and female individual taxpayers. Furthermore, there is a slight revision in slabs. Incomes between Rs. 200,001 to Rs. 500,000 will be taxed at 10% while incomes between Rs. 500,001 to 10,00,000 will be taxed at 20%. Income above Rs. 10,00,000 will be taxed at 30%.It has also been proposed to increase the threshold limit (gross receipts) for audit of accounts of professionals. The threshold limit is proposed to be increased to Rs. 25 lakhs from Rs. 15 lakhs from 1st April, 2013. This would ease up compliances for a number of professionals..Tax exemption is also proposed to be provided for investment under Rajiv Gandhi Equity Saving Scheme for 50% of investment (maximum investment of Rs. 50,000 for a period of 3 years) for individuals with income below Rs. 10 lakhs..International Taxation.The loss before the Hon’ble Supreme Court in the case of Vodafone seems to have prompted introduction of a number of clarificatory amendments. However, unfortunately for the taxpayers, many of these changes have been introduced with retrospective effect with some going as back as 1962..The definition of ‘property’ in Section 2(14), definition of ‘transfer’ under Section 2(47) and Section 9 have been proposed to be amended so as to bring to tax transfer of shares or other proprietary interest situated outside India if the value of such shares or interest derives substantially from assets situated in India. This amendment is similar to the provisions in proposed Direct Taxes Code. The term ‘substantially’ has not been defined and is open to varied subjective interpretation..Furthermore, it has been clarified that non-residents are covered under the scope of Section 195 and are liable to deduct tax irrespective of whether such non-residents have a place of residence, business, business connection or any presence in India..These amendments have been introduced in light of the Vodafone decision. These amendments are retrospective in nature and it would be very interesting to see how the Hon’ble Supreme Court deals with these changes while hearing the Review Petition filed by the Government in the case of Vodafone..Retrospective clarification is also proposed to be introduced to cover transponder payments and software license fees.. Transfer Pricing .Significant changes have been brought about in the transfer pricing regime. In fact the very definition of ‘international transaction’ has been amended with retrospective effect to include restructuring transactions taken within enterprises belonging to a group. Furthermore, now even certain domestic transactions will be subject to the transfer pricing provisions..The Budget also proposes to introduce Advance Price Agreements (“APA”) which is expected to bring down litigation pertaining to Transfer Pricing to certain extent..In specific cases, even pure domestic transactions are proposed to be brought under the Transfer Pricing regime.. Tax withholding.It is also proposed to introduce tax withholding at the rate of 1% of sale consideration on immovable property (other than agricultural land) over certain prescribed limits. There was no withholding liability on domestic real estate transactions prior to this amendment..Other Proposals.It is proposed to tax share premium received by closely held companies in their hands in excess of fair market value from residents. An exception is proposed to be made in case of receipts from venture capital funds..It is proposed to extend alternate minimum tax to all persons subject to certain threshold limits..Cascading effect of Dividend Distribution Tax in multi-tier structures is proposed to be removed..A number of tax avoidance measures have been introduced. Many transactions are now subject to withholding thereby necessitating reporting of such transactions..It is proposed to extend the time limit for issue of notice for reopening an assessment from 6 years to 16 years, where the income in relation to any asset (including financial interest in any entity) located outside India and chargeable to tax has escaped assessment..In addition to the provision of various specific anti-avoidance measures, the budget also proposes to introduce General Anti-Avoidance Rules (“GAAR”). The GAAR would deem certain arrangements with the dominant purpose to obtain a tax benefits and satisfying any of the other specified requirements as impermissible avoidance arrangements. These other requirements include lack of commercial substance, misuse or abuse of tax provisions, lack of bona fides etc. It is proposed that factors like period of existence of arrangement, tax generated through the arrangement etc. should not be relevant in determining the commercial substance of the arrangement. It must be noted that factors like these were considered relevant for determining commercial substance of a particular transaction in Vodafone..Freddy Daruwala, Partner at Nasikwala Law Office.It is apparent that the budget seeks to take away more by indirect taxes , than give by way of concessions in direc t taxes and is inflationary. It also seeks to introduce the Direct Taxes Code (DTC) through the back door and totally disregards the Parliamentary standing committee report in respect of the same..In the words of Shakespeare’s Hamlet which the FM has quoted one can further add that the taxpayer (especially an international taxpayer) “Will face the slings and arrows of outrageous (tax) fortunes and be faced with a sea of (tax) troubles”.Some of the other important features of the budget are:.Drastic, far reaching changes in International and Cross border taxationTransfer pricing provisions applicable to domestic transactions between associated enterprises with threshold of INR 5 crVodafone sought to be taxed by draconian retrospective amendments to Section 9 dealing with income deemed to accrue/arise in India (and corresponding amendments to definitions and Withholding tax sections).Introduction of General Anti- Avoidance Rule( GAAR) which seeks to override tax treatiesWithholding tax provisions applicable even to non-residents on payments to non-residents even if there is no direct nexus with India.Resources:.Finance Bill.Budget Speech: PDF Format.(photo: openmarkets.in)