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CS Professional · Advanced Direct Tax Laws and Practice · Transfer Pricing and General Anti Avoidance Rules (GAAR)

Under Section 181 of the Income-tax Act, 2025, which of the following is NOT listed among the consequences that may follow when an arrangement is declared an impermissible avoidance arrangement?

A fixed percentage penalty on the gross value of the arrangement is not among the listed consequences. Section 181(2) lists tax consequences such as disregarding the arrangement, reallocating deductions and looking through corporate structures, but it does not provide for a penalty on gross value.

  1. ATreating the arrangement as if it had not been entered into or carried out
  2. BReallocating any expenditure, deduction, relief or rebate amongst the parties
  3. CLooking through the arrangement by disregarding any corporate structure
  4. DImposing a fixed percentage penalty on the gross value of the arrangement as a consequence under that sectionCorrect

Explanation

Section 181(2) lists disregarding or recharacterising steps, treating the arrangement as not entered into, reallocating receipts or deductions, and looking through corporate structure. No fixed percentage penalty on gross value is listed there. The other three options appear in the list.

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