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

Under Section 181 of the Income-tax Act, 2025, which of the following is expressly stated as a possible treatment when an arrangement is an impermissible avoidance arrangement?

Section 181(3) of the Income-tax Act, 2025 permits equity to be treated as debt or vice versa. It also allows capital receipts to be treated as revenue and vice versa, and expenditure or reliefs to be recharacterised. Residence of a party need not be accepted as stated.

  1. AEquity may be treated as debt or vice versaCorrect
  2. BDebt may never be recharacterised as equity
  3. CRevenue receipts may never be treated as capital in nature
  4. DResidence of a party must always be accepted as stated in the arrangement

Explanation

Section 181(3)(a) says any equity may be treated as debt or vice versa. Capital and revenue receipts may also be recharacterised in either direction, and the place of residence of a party may be treated as being elsewhere, so the other options contradict the section.

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