Question

Government is committed to implement General Anti Avoidance Rule (GAAR) in the country from the next financial year. Consider the following statements:

Which of the above statement(s) is/are NOT correct?

• A. Only 1 & 2
• B. Only 2 & 3
• C. Only 1
• D. None of the Above

Answer 1

The correct option is C Only 1

Tax Evasion and Tax avoidance are two different things. While Avoidance is legal management to avoid tax, evasion is illegal means to reduce tax liabilities, i.e. falsification of books, suppression of income, overstatement of deductions, etc. Tax planning, as opposed to tax evasion which is illegal, is an accepted practice whereby the tax-payer uses provisions of the law or loopholes to minimise his tax liability. GAAR is not an antidote for ‘tax evasion’; it can only solve ‘tax avoidance’ since it cannot deal with what is not reported. The implication of GAAR is that the Income-tax department will have powers to deny tax benefit if a transaction was carried out exclusively for the purpose of avoiding tax