India plans to clarify controversial tax rules

India says it plans to issue fresh guidelines on sweeping new anti-tax evasion rules as it seeks to reassure rattled foreign investors and attract vital funds from abroad.

The General Anti-Avoidance Rules (GAAR), introduced in this year's budget, had been widely criticised at home and abroad with many seeing it as a money-grabbing exercise by a government battling to curb its budget deficit.

"A widespread consultative process is necessary to generate a discussion on GAAR provisions so that there is an informed debate on how GAAR is going to operate," a statement on Prime Minister Manmohan Singh's website said on Saturday.

GAAR seeks to curb tax evasion via investments through foreign tax havens and other avenues.

Singh has set up a committee of experts to bring "a high degree of technical expertise to the consultation process", the statement said, adding that there "is a need to have greater clarity" on GAAR.

The panel is charged with preparing a "roadmap" by September 30 for GAAR's implementation.

The government earlier delayed putting GAAR into effect by a year after foreign investors expressed alarm that tax authorities would misuse the new rules to go after companies which had invested through legitimate routes.

The move to review the new tax rules comes after Singh took over the reins of the finance ministry following the resignation of Pranab Mukherjee, who is running for the mainly ceremonial role of India's president.

The government issued draft GAAR guidelines late last month and solicited public feedback. The expert panel will use the comments to "vet and rework" the guidelines and publish the second draft for consultations by August 31.

The government has already said the tax rules will not be imposed retroactively as some foreign investors had feared.

India's ability to attract foreign investment is crucial as it urgently needs funds to upgrade its dilapidated airports, roads, ports and other infrastructure in order to ease bottlenecks and spur sharply slowing economic growth.

Singh -- renowned for initiating the country's economic liberalisation in 1991 -- has already identified tax problems as having fuelled a "negative mood" among investors towards India.

"It seems that the prime minister is giving a fair indication that GAAR has to be diluted," Avinash Gupta, vice president at Delhi-based brokerage Globe Capital Ltd, told Dow Jones Newswires.

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