The controversial GAAR provision, which seeks to check tax avoidance by investors routing their funds through tax havens, will come into effect from April 1, 2016, a government notification said.
The provision of General Anti Avoidance Rules (GAAR) will apply to entities availing tax benefit of at least Rs 3 crore, according to the notification dated September 23.
It will apply to foreign institutional investors (FIIs) that have claimed benefits under any Double Tax Avoidance Agreement (DTAA).
Investments made by a non-resident by way of offshore derivative instruments or P-Notes through FIIs, will not be covered by the GAAR provisions.
A business arrangement can be termed 'impermissible' if its main purpose is to obtain tax benefit. Under the original GAAR proposals, the anti-tax avoidance provisions could be invoked "if one of the purposes" was to obtain tax benefit.
The notification is broadly in line with recommendations of the Parthasarathi Shome Committee, which was set up by Prime Minister Manmohan Singh in July last year to address the concerns of investors.