General Anti Avoidance Rules (GAAR) has been introduced to overcome the problem of Tax Avoidance. It is intended to target tax evaders like Indian companies and investors trying to route investments through tax havens in order to avoid taxes. In past, many developed countries have implemented GAAR. The Prime Minister constituted an Expert Committee (EC) on GAAR on 17 July 2012, under the chairmanship of Dr. Parthasarathi Shome, to vet and rework the Guidelines based on comments from various stakeholders and the general public.
GAAR provisions are applicable to Tax avoidance only and not on Tax Mitigation and Evasion.
A minimum threshold limit of a tax benefit of Rs3 crore before GAAR is applicable
It has been made effective from 1 April 2017 in Indian tax law.
IAA applies to only those transactions where “the main purpose” is to obtain a tax benefit in addition to satisfaction of at least one of the four tainted elements tests:
GAAR is triggered only if there is an Impermissible avoidance arrangement (IAA).
A taxpayer has the right to appeal to the Income Tax Appellate Tribunal (ITAT) against an order passed by the Revenue along with the direction of the Approving Panel. A subsequent appeal may be filed before a High Court and the Supreme Court
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