With the government failing to meet its direct tax revenue collection target by as much as Rs 32,000 crore for the fiscal year 2011-12, one could not have expected a tax payer-friendly Budget.

While the tax rates for individuals have been marginally relaxed and corporate tax rates left unchanged, the finance minister has introduced a slew of measures in order to widen the tax base and prevent generation and circulation of unaccounted money.

As was widely anticipated, the finance minister has introduced the General Anti-Avoidance Rules (GAAR), as per which an arrangement entered into by a tax payer may be declared impermissible, if, inter alia, its main purpose is to obtain tax benefit.

The onus of proving that obtaining tax benefit was not the main purpose of the arrangement lies with the tax payer. The scheme for regulating the condition and manner of application of GAAR provisions is expected to be prescribed in due course.

And that shall largely determine the extent to which GAAR carries a real risk of undermining the ability of the business to carry out sensible and responsible tax planning.

While, taxation of offshore transfers with underlying Indie international community an assets was expected, introduction of these provisions with retrospective effect comes as a surprise. This not going to look at this change favourably.

Further, going forward, tax residency certificate in a prescribed format will be required to claim treaty benefits. The introduction of Advance Pricing Agreements (APA) will however provide a semblance of comfort and relief to taxpayers and put the status of the Indian tax system a notch higher and at par with those of developed countries.

The success of the APA programme would depend upon the care taken in its proper administration, the presence of adequate safeguards to avoid pitfalls and more importantly on the flexibility, openness and co-operative attitude with which all parties approach the APA process.

Share premium received from a resident investor in excess of the fair market value shall now be treated as income in the hands of a closely held company; an exception being made in case of capital invested by a venture capital fund.

Measures to bring back unaccounted money from outside India include increase in the period of limitation to reopen assessment in cases of income escaping assessment in relation to assets located outside India from 6 to 16 years and mandatory filing of returns of income in relation to assets located outside India.

The good news on the tax incentives and relief front, among others, is the lowering of withholding tax from 20% to 5% on interest received by non-residents from certain stressed infrastructure sectors (such as power, port, roads, dam, fertilisers, etc; but telecom excluded); removal of cascading effect of DDT; additional depreciation to power sector; weighted deduction of 150% for expenditure on skill development and extension of agricultural projects; reduction of STT rates for deliverybased transactions; deduction of up to Rs 10,000 on interest received by individuals and HUF from banks.

While this Budget seeks to incentivise the small tax payer and certain sectors by way of deductions and exemptions, it seeks to come down heavily on tax avoidance, unaccounted income and international transactions.

One just hopes that the widely drafted provisions are not misused by the tax authorities and that this does not create a negative environment for India as an investment destination.