Watch Live: Debate on Finance Bill in Parliament

Finance minister Pranab Mukherjee today announced that implementation of the General Anti-Avoidance Rules or GAAR would be deferred to April 2013. He said this while introducing the finance bill in the Lok Sabha, and also clarified that the government will remove a provision which puts the onus on the tax payer to prove that there has been no tax avoidance. The onus, he said, would be on tax officials.

The government softened its stance on taxation by putting off measures that hurt businesses.

Mukherjee announced a roll back of the excise levy on all branded and unbranded jewellery. The budget had imposed an excise duty The threshold limit for tax deducted as source for cash purchases of jewellery would be raised to Rs 5,00,000 from the current Rs 2,00,000. Shares of Titan Industries, which generates bulk of its revenue from jewellery stores, rose 3 per cent.

The government has also removed the tax deducted at source on sale of property. The government had proposed one per cent TDS (tax deduction at source) on transfer of immovable property if the sale value exceeded Rs 50,00,000 in urban centres and Rs 20,00,000 lakh in other areas.

Mukherjee also said that clarificatory amendments to tax rules do not override double taxation avoidance treaties which India has with other countries. “The retrospective amendments will not be used to re- open any cases where assessment orders have been finalized. He said that CBDT has been asked to issue a policy circular to clearly state this position after the passage of the finance Bill,” he told Parliament. The controversial retrospective tax changes announced in the Budget allowed the government to tax overseas tax deals like Vodafone's acquisition of Hutch. There has been criticism from around the world.

The finance minister also announced 0.2 per cent securities transaction tax on deals involving unlisted companies instead of a withholding tax. The imposition of a withholding tax hurt private equity or venture capital companies that were looking to exit their early stage investments in private firms. This should come as a relief to investors.

Share prices bounced back as benchmark indices jumped into positive territory from falling sharply in the early morning trade. The 30-share BSE Sensex gained fell further through the morning on Monday; among the reasons, investors awaiting clarity on GAAR and other issues that would affect market and investor sentiment. The 30 share BSE Sensex and the broader NSE Nifty rose 0.5 per cent recovering from the day’s lows of over 1.5 per cent.

The government has also constituted a committee under the Chairmanship of the Director General of Income Tax (International Taxation) to give recommendations for formulating the rules and guidelines for implementation of the GAAR provisions and to suggest safeguards so that these provisions are not applied indiscriminately. “The Committee has already held several rounds of discussion with various stakeholders including the Foreign Institutional Investors. The Committee will submit its recommendations by 31st May 2012,” Mukherjee said.

GAAR - introduced by Mr Mukherjee in his Budget presented on March 16 with an objective to counter aggressive tax avoidance practices by companies - has had foreign institutional investors (FIIs) worried because the imposition of the rule would mean paying tax on profits in India. It empowers officials to deny tax benefits on transactions or arrangements which do not have any commercial substance or consideration other than achieving tax benefit.

It is estimated that taxation worries could have cost Indian markets about $10 billion worth of investments from overseas funds and very rich foreign individuals over the last month.

There has been much concern voiced over the uncertain global scenario and worry over decision-making of the government seeming slower and slower and the Finance Minister has his task in Parliament cut out as he answers some tough questions that the Opposition is likely to raise during this debate.

According to Nomura, a large Japanese bank, India's economy is not short of potential, but its potential growth rate could fall further if the government fails to reduce the fiscal deficit and fails to pursue structural reforms to open crippling supply-side bottlenecks. “We believe that the 2Gs – government and governance deficits – are the root cause of many of India?s economic problems, fuelling inflation, lowering the savings rate, crowding out private investment and widening the current account deficit by fuelling consumption – all of which are having the effect of retarding India?s growth potential,” Nomura said.