India may amend GAAR after panel report

Chidambaram speaks during a news conference in Srinagar, October 14, 2009.

NEW DELHI (Reuters) - India could amend controversial rules on tax avoidance within 20 days, Finance Minister Palaniappan Chidambaram said on Monday, potentially ending months of uncertainty after the prime minister ordered a panel to clarify the tax proposals that had hurt investor confidence.

The finalized General Anti-Avoidance Rules (GAAR), which would target companies and investors routing money through tax havens, are expected to be softer on investors than originally proposed in the budget.

India's moves to toughen tax collection had triggered an outcry from global industry groups and were blamed for a drop off in investment flows into India. In response, Prime Minister Manmohan Singh set up the Shome committee to look at ways of addressing concerns that the new laws were arbitrary.

Chidambaram did not give details of the Shome committee report delivered to him on Monday but Indian TV station ET Now said the final version was similar to a draft that recommended watering down some rules and deferring implementation for three years.

"We will examine the report in the next 10 days and the final GAAR rules may come out in 10 days after that," Chidambaram told reporters, adding that the income tax law may have to be modified to meet the panel's recommendations.

On Monday, panel chief Parthasarathi Shome also gave the finance minister a draft report on the issue of retrospectively taxing overseas deals involving local assets. Chidambaram said the draft could be made public in 10 days.

In a move seen as targeting Vodafone (VOD.L), India passed a law in May to seek taxes from such deals.

The law followed a Supreme Court ruling that said Vodafone, the largest overseas corporate investor in India, did not have to pay tax in on its $11 billion deal to enter the country.

India had sought $2.2 billion from London-listed Vodafone in tax after its purchase of Indian assets from Hong Kong-listed Hutchinson Whampoa Ltd (0013.HK). Vodafone said the deal was between two overseas entities, and India had no such right.

In an interview published on Monday, Chidambaram said the dispute needed to be resolved and that he was waiting for Shome's recommendations.

"Do we resolve it through a settlement or through arbitration or litigation, is a matter that has to be considered," he told the Economic Times newspaper.

(Reporting by Manoj Kumar and Arup Roychoudhury; Editing by Simon Cameron-Moore)