• GAAR is designed to prevent taxpayers from obtaining tax benefits through arrangements that technically comply with legal provisions but constitute impermissible tax avoidance.

  • Under the Income-tax framework, an arrangement can be treated as an Impermissible Avoidance Arrangement (IAA).

  • Relevant factors include:

    • Main purpose of obtaining a tax benefit

    • Misuse or abuse of tax provisions

    • Lack of commercial substance

    • Arrangements not ordinarily employed for bona fide purposes.

  • GAAR applies to assessment years beginning on or after 1 April 2018 under the earlier framework.

  • GAAR has also been retained under the Income-tax Act, 2025.

Key Pointers

  • Purpose: Prevent aggressive tax avoidance

  • Concept: Substance over form

  • Important term: Impermissible Avoidance Arrangement

  • Difference from tax evasion: Avoidance concerns structuring transactions to obtain tax benefits; evasion involves illegal concealment/non-payment.

  • UPSC angle: Direct taxation + corporate taxation