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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

Aarav Ltd. routes funds through a series of group entities across locations. Money moves among the parties and returns to Aarav Ltd., and the only purpose of these transfers is to obtain a tax benefit. Which statement correctly applies the Income-tax Act, 2025?

Round trip financing arises where funds are transferred among parties through a series of transactions with no substantial commercial purpose other than a tax benefit. It applies regardless of whether funds can be traced, the sequence of transfers, or the mode used, so tracing is not required.

  1. AIt is round trip financing only if the same funds can be traced from the origin to the return
  2. BIt is round trip financing only if the transfers occur in a fixed sequence
  3. CIt is round trip financing only if bank transfers are used
  4. DIt can be round trip financing regardless of tracing, sequence or mode of transferCorrect

Explanation

Round trip financing covers a series of transactions in which funds are transferred among parties without substantial commercial purpose other than the tax benefit. This applies without regard to whether the funds can be traced, the time or sequence, or the means or mode of transfer. Hence the options requiring tracing, sequence or a particular mode are wrong.

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