#Taxtracker #1: CBDT on GAAR, Angel Tax & more

Bar & Bench will bring to you the latest updates from the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC). In this edition of the Bar & Bench Tax Tracker, we analyse the latest updates in relation to GAAR, Angel Tax and TDS for foreign investors..Prospective application of GAAR with retrospective element.The Government has ended the uncertainty over the applicability of the General Anti Avoidance Rules (GAAR) by amending the Income Tax Rules, 1962 (Rules)..Through a notification dated 22 June, 2016, the CBDT has aligned the Rules with the recently reworked India and Mauritius Double Taxation Avoidance Agreement which will grandfather all investments till April next year..As per the amended Rules, GAAR will not apply to any income earned or received from transfer of investments/arrangements made before April, 2017, thus providing relief to foreign investors. However, any tax benefits which will accrue F.Y 2017-18 onwards, from any investments/arrangements made prior to April 2017, will fall within the ambit of GAAR provisions..TDS rules relaxed for non-resident investors.Until now, under Section 206AA of the Income Tax Act (Act), non-resident investors who did not submit a permanent account number (PAN) had to face higher tax deduction at source (TDS) at the rate of 20% and were also not provided with TDS certificates..The CBDT has sought to provide a major relief to non-resident entities by inserting Rule 37BC to the Rules. Non-resident entities will, henceforth, be allowed to avail lower withholding tax under Section 206AA without having to provide the PAN..Under the newly inserted rule, investors will instead need to provide details such as e-mail, contact number, residential address and tax residency certificate from the government of their home country to avail the benefit..‘Angel Tax’ struck down.The CBDT has issued a notification repealing the so called ‘angel tax’ under Section 56(2)(vii)(b) of the Act. Earlier, capital raised by startups from domestic angel investors would be taxed as ‘income from other sources’ at the rate of 30%..As a result, in case a startup receives investment from resident angel investors, family offices or funds which are not registered as venture capital funds, it will not be taxed even if the investment is made in excess to the fair value..However, to claim this benefit, a startup must be certified by the DIPP. So far, this exercise hasn’t yielded significant results and till date, only 88 entities are registered as startups in India owing to the stringent conditions imposed for their certification.