General Anti-Avoidance Rules (GAAR) are tax regulations designed to prevent aggressive tax avoidance through artificial arrangements. GAAR empowers tax authorities to deny tax benefits obtained through improper tax planning. This topic is important for Indian Economy and competitive examinations.
General Anti Avoidance Rules (GAAR) is an anti-tax avoidance law to avoid tax leaks.
The GAAR provisions come under the Income Tax Act, 1961.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
It is an anti-tax avoidance law in India to curb tax evasion and avoid tax leaks.
It came into effect on 1st April 2017. The GAAR provisions come under the Income Tax Act, 1961.
GAAR is a tool for checking aggressive tax planning, especially those transactions or business arrangements that are entered into with the objective of avoiding tax.
Ques: 2
Consider the following statements:
GAAR assists in tackling particular tax avoidance schemes on a case-by-case basis.
GAAR is meant to apply to transactions that are prima facie legal, but result in tax reduction.
Which of the statements given above is/are correct?
Correct Answer:
(B) 2 only
GAAR is general and it is aimed at targeting tax avoidance broadly. However, SAAR is specific and it assists in tackling particular tax avoidance schemes on a case-by-case basis
GAAR is specifically aimed at cutting revenue losses that happen to the government due to aggressive tax avoidance measures practiced by companies. It is meant to apply to transactions that are prima facie legal, but result in tax reduction.
Ques: 3
Consider the following statements:
1. In India, the provisions of General Anti-Avoidance Rule (GAAR) will be implemented with effect from 1 April 2015.
2. The provision of GAAR were aimed at checking tax avoidance by overseas investors.
Which of the statements given above is/are correct?
Correct Answer:
(B) 2 only
The General Anti-Avoidance Rule (GAAR) in India was initially proposed to be implemented from 1 April 2015. However, the implementation of GAAR was deferred, and it was eventually implemented from 1 April 2017.
GAAR provisions are aimed at curbing tax avoidance practices, particularly those involving complex arrangements that lack commercial substance.
These rules are designed to target transactions or arrangements that are primarily aimed at obtaining tax benefits.
Overseas investors, among others, are subject to GAAR provisions if their transactions are found to be primarily for tax avoidance purposes.
Ques: 4
Which of the following statements are correct in the context of the provisions stated by the Shome committee report on GAAR?
1. GAAR should apply “only in cases of abusive, contrived and artificial arrangements”.
2. It proposed to do away with short-term capital gains tax by increasing the transaction tax.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
GAAR should apply “only in cases of abusive, contrived and artificial arrangements”, the Shome panel suggested that the I-T Act may be amended to provide that only arrangements which have the main purpose (and not one of the main purposes) of obtaining tax benefit should be covered under GAAR. So, statement 1 is correct.
It proposed to do away with short-term capital gains tax by increasing the transaction tax. In order to make the proposal tax neutral, the government may consider increasing the rate of Securities Transaction Tax (STT) appropriately. So, statement 2 is correct.
Ques: 5
Consider the following statements:
GAAR applies to arrangements declared as Impermissible Avoidance Agreements (IAA) by taxpayers.
GAAR's applicability overrides other provisions, emphasizing its broad scope.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
GAAR applies to any arrangement that is considered an Impermissible Avoidance Arrangement (IAA). Furthermore, under its provisions, certain transactions are deemed to lack commercial substance. GAAR is not merely restricted to cross-border transactions, but also applies to domestic arrangements.
Clause 178(1) employs a non-obstante clause, making it clear that GAAR provisions will prevail over any other provision of the Act. This is critical because tax statutes often have specific anti-avoidance rules (SAARs) and other provisions that could potentially conflict with a general anti-avoidance regime.