Tax Revenue Loss due to Avoidance and Tax Planning by Companies

The Government of India is aware of the potential loss of revenue from tax avoidance, and has been taking all necessary measures for preventing it.

As a part of these measures, India has actively participated n the Base Erosion and Profit Shifting (BEPS) project undertaken by the OECD and G-20 countries, which is aimed at aligning taxation of income with the place where economic activity is performed and value is created, including by ensuring that Double Taxation Avoidance Agreements (DTAAs) are not used for tax avoidance. These measures also include the implementation of General Anti-Avoidance Rules (GAAR), which have already been provided in the Income-tax Act, 1961 in Chapter X-A. The GAAR provisions shall apply for the Assessment Year 2018-19 and subsequent years.

Some of the DTAAs entered into by India with other countries provide for taxation of capital gains on equity shares only in the country of which the taxpayer is a resident. The government is aware that some of the investments coming from such countries may be influenced by this provision. The Government has already initiated the process of negotiation with such countries for amending the provisions on capital gains taxation in DTAAs with such countries.

This was stated by Shri Jayant Sinha, Minister of State in the Ministry of Finance in written reply to a question in Lok Sabha today.