India's finance minister, Palaniappan Chidambaram has announced that plans to implement a new general-anti avoidance rule (GAAR) are to be further delayed until 2016.
The news swiftly follows an about-turn by the Indian Finance Ministry to reopen talks with Vodafone, with whom the government has a long-running legal spat over a $2.2bn (£1.4bn) tax bill.
An official letter - demanding the tax which the government says it is owed due to Vodafone's purchase of Indian interests of Hong Kong-based Hutchison Group through a Cayman Islands holding company in 2007 - was sent to Vodafone earlier this month.
But in the latest developments, India's financial ministry has confirmed that revenue secretary Sumit Bose and the chairman of the country's Central Board of Direct Taxes, Poonam Kishore Saxena, plan to meet with Vodafone representatives to discuss the issue.
India's GAAR was originally due to take effect from April 2012, but was delayed for one year by the ex-finance minister Shri Pranab Mukherjee to coincide with the introduction of the Direct Tax Code (DTC).
However, the Indian Finance Bill 2012 further pushed back the implementation date, to April 2014. The provisions, which inserted a new chapter, X-A, into the Income Tax Act 1961, were released alongside a set of guidelines, published in June.
Prime minister Manmohan Singh subsequently set up an expert committee, chaired by Dr Parthasarathi Shome, to vet and rework the guidelines.
A draft report was submitted to the Finance Ministry last August, and released to the public in September. A final report was issued at the end of September, based on responses to the draft.
The committee's headline conclusion was that investor confidence had taken a considerable hit, mainly as a result of concerns over the impact of retrospective tax laws and plans for the GAAR.
According to Chidambaram, the government has carefully considered the report and has accepted its major recommendations. Not least among these is the committee's suggestion that Chidambaram further delay implementation, to 2016-17. Accordingly, the GAAR will therefore now not take effect until 1 April 2016.
The rule, as implemented in 2016, will mean that any arrangement, the main purpose of which is to obtain a tax benefit, will be considered as impermissible tax avoidance. The government will amend the current provision, which describes a tax benefit as 'the main purpose or one of the main purposes', to reflect the committee's recommendation.
An Authority for Advance Rulings will be able to provide determinations on whether an arrangement is an impermissible avoidance arrangement. Assessees will be given an opportunity to prove that the arrangement does not fall into this category.
