Question

Consider the following about GAAR

1. It was introduced to prevent tax avoidance
2. GAAR has both prospective and retrospective effects

Which of the above are correct?

• A.
  1 only
• B.
  2 only
• C.
  Both 1 and 2
• D.
  None of the above

Answer 1

The correct option is A

1 only
General Anti-Avoidance Rule is a set of rules or framework which helps the revenue authorities decide about whether a particular transaction has commercial substance or not. If not, then it is not a genuine transaction and then the tax liability associated with it is decided.

The GAAR aims to prevent the avoidance of Indian tax through participation in arrangements that are not bona fide or that lack commercial substance, including situations in which nonresidents attempt to obtain the benefit of India's tax treaties under improper circumstances. GAAR has prospective effect.