India has decided to defer controversial rules to fight tax evasion for two years, the finance minister said on Monday, which should help to ease foreign investor concerns.
The General Anti-Avoidance Rules, introduced in last year's budget to curb tax evasion through tax havens, will now be introduced from April 1, 2016 on the recommendation of a government panel.
The rules, which had been criticised by several experts as a money-grabbing exercise by a government battling to curb a widening fiscal deficit, were originally due to come into force in 2014.
Indian shares extended gains after the news, up 0.94 percent, or 185.73 points, to 19,849.37, their highest level in about two years.
The tax rules will apply to only those foreign investors who seek to take advantage of the double taxation avoidance treaties India has with different countries, Finance Minister P. Chidambaram told reporters.
"No investor should have any apprehension about their investments in India," Chidambaram said.
"The modifications that we have done are fair, non-discriminatory, just and strike a balance between interest of revenue and interest of investors," he said.
One of India's top businessmen, software entrepreneur N.R. Narayana Murthy, slammed the government over the earlier proposals, which he said soured foreign sentiment and were "like taking a pistol and shooting ourselves".
Foreign institutional investors, who started to invest in Indian equities and debt markets after liberalisation in the 1990s, were net investors in Indian stocks worth $24.37 billion in 2012.
-- Dow Jones Newswires contributed to this report --