New general anti-avoidance rules create taxing times

By Pranay Bhatia and Janhavi Sharma, Economic Laws Practice
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Tax authorities have been contending taxpayers are deploying various structures to obtain tax benefits. In order to bring such arrangements under their purview, General Anti-Avoidance Rules (GAAR) have been introduced in the Finance Act, 2012, to deal with aggressive tax planning.

Pranay Bhatia Partner Economic Laws Practice
Pranay Bhatia
Partner
Economic Laws
Practice

Benefit test

Where an arrangement, or a part thereof, is entered into with the main purpose of obtaining a tax benefit, GAAR provisions will apply. Along with a main purpose test, one of the following should be satisfied for an arrangement to be termed as an impermissible avoidance arrangement (IAA):

• Creation of rights and obligations, which are not normally created; or

• Misuse or abuse of tax provisions; or

• Lack of commercial substance or deemed to lack commercial substance; or

• Carrying out an arrangement for a non-bona fide purpose

The provisions place responsibility on the tax office to prove that the taxpayer’s main intent of entering into such an arrangement was to obtain a tax benefit. By invoking GAAR, the tax office can levy additional taxes or deny tax benefits on the IAA.

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Economic Laws Practice is a full-service law firm with headquarters in Mumbai and offices in New Delhi, Pune and Ahmedabad. Pranay Bhatia is an associate partner at the firm and Janhavi Sharma is an associate.

ELP

Economic Laws Practice

1502 A Wing, Dalamal Towers

Free Press Journal Road

Nariman Point, Mumbai 400021

India

Tel: +91 22 6636 7000

Fax: +91 22 6636 7172

Email: PranayBhatia@elp-in.com

JanhaviSharma@elp-in.com

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