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

Under Section 181 of the Income-tax Act, 2025, which of the following is expressly stated as something that may be done when an arrangement is declared an impermissible avoidance arrangement?

The Act allows equity to be treated as debt or vice versa. Section 181(3) also allows recharacterising capital and revenue receipts and expenses. It does not authorise blanket disallowance of all expenditure, blanket exemption of receipts, or always treating a resident as a non-resident.

  1. ATreating equity as debt or debt as equityCorrect
  2. BTreating the resident party always as a non-resident
  3. CDisallowing every expenditure of all parties to the arrangement
  4. DTreating all revenue receipts as exempt receipts

Explanation

Section 181(3) says any equity may be treated as debt or vice versa. The provisions allow reallocation or recharacterisation case by case, not a blanket disallowance or exemption, and residence may be treated at a place other than that provided under the arrangement, not always as non-resident.

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