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TMI Blog"Curbing aggressive tax avoidance strategies" under the General Anti-Avoidance Rule (GAAR) : Clause 179 of the Income Tax Bill, 2025 Vs. Section 96 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... he spirit and purpose of the tax laws. This provision is not novel in Indian tax jurisprudence; its predecessor, Section 96 of the Income-tax Act, 1961, introduced by the Finance Act, 2013, and effective from April 1, 2016, laid the foundation for the GAAR regime. The operationalization of these anti-avoidance provisions is further clarified by Rule 10UB of the Income-tax Rules, 1962, which prescribes the procedural requirements for invoking GAAR. This commentary provides a comprehensive analysis of Clause 179, examining its objectives, structure, and practical implications. It also offers a detailed comparative analysis with Section 96 and Rule 10UB, highlighting continuities, departures, and interpretative challenges. The analysis is stru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs in a tax-efficient manner and the government's interest in preventing tax base erosion. Detailed Analysis of Clause 179 of the Income Tax Bill, 2025 1. Definition and Core Elements (Sub-section 1) This definition adopts a conjunctive approach: for an arrangement to be "impermissible," it must satisfy the main purpose test (i.e., obtaining a tax benefit) and at least one of the four specified tainting conditions. * (a) Arm's Length Principle: The focus here is on arrangements that create rights or obligations not ordinarily found between independent parties. This aligns with the transfer pricing principle and seeks to identify artificiality or abnormality in the relationship or transaction structure. * (b) Misuse or Ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with only minor differences: * Reference to Commercial Substance: Clause 179 refers to "section 180" for the definition of "lack of commercial substance," whereas Section 96 refers to "section 97." This is a technical update reflecting the renumbering or restructuring of the Act in the new Bill. * Wording of Presumption: Both provisions establish a presumption against the taxpayer where a step or part of the arrangement is tax-motivated, regardless of the overall purpose. The language is almost verbatim, with only stylistic variations ("notwithstanding" vs. "irrespective of the fact"). * Substantive Content: The four tainting conditions (a) to(d) are identical in substance and scope. In sum, Clause 179 is a direct successor to Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 96 of the Income-tax Act, 1961 Definition of Impermissible Avoidance Arrangement Arrangement where main purpose is to obtain tax benefit, and meets one of four specified tests. Identical language and tests as Clause 179. Arm's Length Test Rights/obligations not created between arm's length parties. Same. Misuse/Abuse of Provisions Direct or indirect misuse/abuse of the Act. Same. Lack of Commercial Substance As defined by section 180. As defined by section 97. Non-bona fide Manner Arrangement not ordinarily employed for bona fide purposes. Same. Presumption Regarding Main Purpose Presumption applies if a step/part of arrangement is tax-driven, unless rebutted by assessee. Same, with slightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h International and Domestic Provisions 1. International Comparisons GAAR provisions exist in several jurisdictions, including Canada, Australia, the UK, and South Africa. While the basic structure is similar (main purpose test + tainting conditions), Indian law is notable for its detailed procedural safeguards (as in Rule 10UB) and the explicit presumption regarding step-wise tax benefit, which is broader than some international counterparts. 2. Domestic Comparison: Section 96 vs. Clause 179 As noted, Clause 179 is substantively identical to Section 96, indicating a legislative intent to maintain continuity in the anti-avoidance regime. The cross-reference to the definition of "commercial substance" is updated to reflect the new Bill&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 179 of the Income Tax Bill, 2025, consolidates and continues the Indian GAAR regime as established by Section 96 of the Income-tax Act, 1961. The provision is comprehensive, targeting arrangements with a main purpose of obtaining tax benefits through artificial, abusive, or commercially insubstantial means. The procedural framework in Rule 10UB ensures due process and transparency. While the substantive law remains largely unchanged, the practical impact will depend on administrative implementation and judicial interpretation. The provision reflects a mature, balanced approach to anti-avoidance, but ongoing guidance and jurisprudential development will be essential to address ambiguities and ensure fair, consistent application. Full T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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