Govt aims to finalise GAAR rules by end September

New Delhi: India aims to finalise guidelines to implement controversial rules that target tax evasion by the end of September, its government said on Friday, as it aims to calm worried investors.

The general anti-avoidance rules (GAAR), first introduced in the budget in March this year, target firms and investors routing investments through tax havens.

But a lack of clarity on GAAR's implementation has panicked foreign investors, heightening their wariness about investing in India as they fear new tax rules could be misused.

GAAR target firms and investors routing investments through tax havens.

This comes at a time when India needs higher capital inflows to fund its widening current account gap. A slowdown in foreign capital inflows has made the rupee the worst performing currency in Asia this year, raising fears in some quarters of a balance of payments crisis like the one it faced in 1991.

An investor backlash forced the government in May to defer implementation of GAAR until 2013.

On Friday, Prime Minister Manmohan Singh set up a four-member panel to address those concerns before the measures are introduced.

"...A need was felt for far more widespread consultations. There is a need to have greater clarity on many other fronts," Singh's office said in a statement.

Singh, hailed as an architect of India's two-decade long economic boom, is increasingly facing criticism for failing to carry out important reforms and souring investor sentiment through a series of policy flip-flops.

Asia's third largest economy, which once promised double-digit growth, expanded at its weakest pace in nine years in the first quarter of 2012 and is on the brink of losing its investment grade credit rating.

Singh has vowed to revive the economy's 'animal spirit' by addressing investors' complaints.

A government official later told Reuters that the GAAR rules will be published "soon" after the expert panel finalises the guidelines.

India released draft guidelines on GAAR last month for public comments. The expert panel will use the public feedback and rework those guidelines, and will publish the second draft guidelines for further public review by the end of August.

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