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CMA Final · Direct Tax Laws and International Taxation · GAAR

Meera Pvt Ltd routed a Rs 50,00,000 income through a conduit entity, an arrangement later held impermissible by the Approving Panel. The conduit paid no tax, while Meera would have paid tax at 25% if it had earned the income directly. Ignoring surcharge, cess and interest, what is the tax benefit that GAAR can neutralise?

The tax benefit is Rs 12,50,000. Had Meera earned the Rs 50,00,000 directly, it would have paid 25% tax, which is Rs 12,50,000. Since the conduit paid nothing, this entire amount is the tax avoided and can be denied under GAAR.

  1. ARs 12,50,000Correct
  2. BRs 5,00,000
  3. CRs 25,00,000
  4. DRs 37,50,000

Explanation

Tax benefit equals the tax avoided: 25% of Rs 50,00,000 = Rs 12,50,000. Check: 12,50,000 / 50,00,000 = 25%. The Rs 25,00,000 option wrongly halves the income as base, and Rs 37,50,000 is the post-tax income of 75%.

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