Introduction of General Anti-Avoidance Rule (GAAR) - Income Tax - Ready Reckoner - Income Tax

Introduction Taxpayer consider it their legitimate right to arrange their affair in a manner as to pay least tax possible. however, tax authorities internationally consider aggressive tax planning schemes by taxpayers to erode the tax base unnaturally, particularly when effective rate of tax diminish significantly. The general Anti-Avoidance Rules (GAAR) provisions aim at combating impermissible tax avoidance . Many Countries Like the Unite Kingdom, South Africa, Australia, Canada and Brazil have incorporated General Anti-Avoidance Rules in their domestic tax laws to deal with aggressive tax planning. In India, the GAAR concept was initially introduced in the Direct taxes Code Bill, 2009. First time inserted General Anti-Avoidance Rules (GAAR) were inserted in the income tax act, 1961 vide the finance act, 2012 by insertion of new chapter X-A. and applicable from April 1st, 2014 but thereafter by the Finance act 2013 , omission of Chapter X-A of the Income-tax Act (as inserted by section 41 of the Finance Act, 2012 ) relating to General Anti-Avoidance Rule shall be omitted with effect from the 1st day of April, 2014. In the Finance act after the omission of Chapter X-A which is inserted by the finance act 2012, again inserted Chapter X-A in the Finance Act 2013 for the General Anti-Avoidance Rule (GAAR). such chapter effective from 1st April 2016. The government subsequently set up a panel Parthasarathy Shome to review the proposals. the committee suggested that the rule be deferred by three year to 2016-17, arguing that more time is need to create administrative machinery for its implementation and called for intensive training of officials. In Finance Act 2015 made amendment in the section 95 by the insertion of sub section (2) This Chapter shall apply in respect of any assessment year beginning on or after the 1st day of April, 2018. . The CBDT vide Press Release dated circular 27th January, 2017 clarified that the GAAR provisions effective from A.Y. 2018-19 on wards i.e F.Y. 2017-18. Prior the A.Y. 2018-19, the act contained only Specified Anti-Avoidance Rules (SAARs) to prevent tax avoidance. SAAR targets known tax planning schemes which are commonly used by taxpayer but are not acceptable owing to misuse or abuse to tax laws