What is the anti avoidance rule in tax?
General anti-avoidance rule It ensures the failure of blatant, artificial or contrived arrangements to obtain tax benefits. It’s assessed on the objective facts and circumstances of each case. It applies where a taxpayer enters into a scheme for the sole or dominant purpose of obtaining a tax benefit.
What is GAAR in economics?
General Anti-Avoidance Rules(GAAR) is a tool for checking aggressive tax planning especially those transactions or business arrangements which are entered into with the objective of avoiding tax.
Who introduced GAAR?
Finance Minister Pranab Mukherjee
GAAR was introduced in the year 2012 during the budget session in 2012 by then Finance Minister Pranab Mukherjee. Article 265 of the Constitution of India gives power to the government to levy or collect tax from the people of India.
What are examples of tax avoidance?
Some examples of legitimate tax avoidance include, putting your money into an Individual Savings Account (ISA) to avoid paying income tax on the interest earned by your cash savings, investing money into a pension scheme, or claiming capital allowances on things used for business purposes.
When can GAAR be invoked?
One more condition for applicability of GAAR states that when the saving of tax by both the parties to the transaction aggregately exceeds Rupees Three Crores, GAAR can be made applicable. Where GAAR is invoked the particular transaction will be termed as Impermissible Avoidance Arrangement.
What are the implications of GAAR?
While applying GAAR, tax authorities may deny benefits available to parties in arrangement under double taxation avoidance agreement, deem connected parties as one and the same, reallocate expenditure and income between the parties to the arrangement, treat debt as equity and vice versa, alter tax residence of the …
Is GAAR applicable in India?
Chapter X-A of the Income Tax Act, 1961 of India deals with the concept of GAAR. GAAR was introduced in the year 2012 during the budget session in 2012 by then Finance Minister Pranab Mukherjee. Article 265 of the Constitution of India gives power to the government to levy or collect tax from the people of India.
What is the benefit of tax avoidance?
Tax avoidance helps businesses minimize their tax burden but their financial difficulties remain because they cannot foresee other non-tax-related expenses; in addition, optimizing taxable income affects stakeholder benefits (. In addition, tax avoidance increases agency costs and reduces firm value (Chen et al., 2014.
What are the causes of tax avoidance?
The results provide five main causes of tax evasion and avoidance: complex income tax structure, lack of incentives to honest taxpayers, need of more awareness/motivational programs for paying income/corporate tax, illiteracy of tax payers, and inefficiency/indiscipline of tax administration department.
When can GAAR apply?
GAAR applies to any arrangement that is considered an Impermissible Avoidance Arrangement (IAA). Furthermore, under its provisions, certain transactions are deemed to lack commercial substance. GAAR is not merely restricted to cross-border transactions, but also applies to domestic arrangements.
What are the effects of tax avoidance?
Tax avoidance significantly reduces government revenues and therefore affects the level of public expenditure. In an economy where human capital accumulation depends on public expenditure, it is clear that tax avoidance can also affect this process.
What are the reason for tax avoidance?
The following are few reasons of tax avoidance: The mindset of the taxpayer which forces them to exploit the provision of the tax laws. Constantly thinking of being charged a higher tax despite their lower income. Significant reduction in the tax payable amount.
What is general anti-avoidance rule?
Tax Avoidance is one of the major concerns across the world. Different countries framed different rules to minimise such tax avoidance. Such rules in simple terms are known as General Anti-Avoidance Rule (GAAR). Thus GAAR is nothing but the set of rules ratified so as to check the avoidance of tax.
How does the general anti avoidance rule apply to Psi?
How the GAAR apply The general anti-avoidance rules (GAAR) will only apply if the dominant purpose of your arrangement is to obtain a tax benefit. For example, if you use a company or trust to retain profits from PSI in your business or split PSI with an associate which reduces your overall income tax liability.
What is Gaar (general anti-avoidance rules)?
GAAR (General Anti-Avoidance Rules) is a tool for checking aggressive tax planning especially that transaction or business arrangement which is/are entered into with the objective of avoiding tax. It has been introduced in India due to VODAFONE case ruling in favour of this company by the Supreme Court.
What is the General Anti-Abuse Rule (GAAR)?
In this delicate balance, we will review the general anti-abuse rules – better said “anti-avoidance” – (“General Anti-avoidance Rule”, “GAAR”). 2. Purpose These rules are intended to combat tax avoidance, a common feature of the tax systems.