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

Under the Income-tax Act, 2025, an arrangement is deemed to lack commercial substance if it involves the location of an asset, a transaction or the place of residence of any party. Which condition must be met for this limb to apply?

The location limb applies when the location of an asset, transaction or party's residence has no substantial commercial purpose other than obtaining a tax benefit. Being outside India, the duration of the arrangement or non-payment of tax is not by itself the test under the Act.

  1. AThe location has no substantial commercial purpose other than obtaining a tax benefitCorrect
  2. BThe location is outside India
  3. CThe arrangement has existed for less than one year
  4. DThe party located there has paid no tax

Explanation

The statutory limb on location applies when the location of an asset, transaction or residence of a party is without any substantial commercial purpose other than obtaining a tax benefit. Foreign location alone is not the test. Duration and payment of tax are only relevant factors and are not sufficient by themselves.

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