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

Anvika Ltd routes funds through three group entities, and the money returns to Anvika Ltd after a series of transfers that serve no purpose other than securing a tax benefit. The funds returned cannot be traced to the original funds, and the transfers were spread over several months by different banking channels. Under the Income-tax Act, 2025, how is this arrangement treated?

The arrangement can still be round trip financing. The definition applies to funds transferred among parties through a series of transactions with no substantial commercial purpose other than the tax benefit, and it disregards traceability of funds, timing, sequence and the mode of transfer.

  1. AIt is not round trip financing because the returned funds cannot be traced to the original funds
  2. BIt is not round trip financing because the transfers took place over several months and in a different sequence
  3. CIt is not round trip financing because different banking channels were used for the transfers
  4. DIt can still be round trip financing, as tracing, timing, sequence and mode of transfer are all disregardedCorrect

Explanation

Round trip financing covers a series of transactions in which funds move among the parties without any substantial commercial purpose other than the tax benefit. The definition expressly disregards whether the funds can be traced, the time or sequence of transfer, and the mode or manner of transfer. So each of the first three defences fails.

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