General Anti Avoidance Rules

The Provisions of Chapter X-A of the Income Tax Act, 1961, relating to General Anti-Avoidance Rule (GAAR) came into force with effect from 1^st April, 2017.

As a result, any transaction which lacks commercial substance or deemed to lack commercial substance or which results, directly or indirectly, in misuse or abuse of the provisions of Income Tax Act, would be negated by the income tax department, by applying the provisions of newly inserted Chapter-X-A.

An arrangement may be declared to be an impermissible avoidance arrangement where the main purpose or one of the main purposes is to obtain tax benefit and it is entered into or carried out, by means or in a manner, which is not ordinarily employed for bona-fide purposes or creates rights or obligation, which are not ordinarily created between persons dealing at arm’s length.

The provisions of Chapter-X-A (General Anti Avoidance Rule) may be applied to any step in or part of the arrangement, as they applicable to the arrangement, if the main purpose of that step or part is to obtain tax benefit.

To understand the G.A.A.R. and guidelines and procedures thereof, you should seek professional help and /or advice from your Chartered Accountant.