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

Under the Income-tax Act, 2025 (applicable from the June 2027 session), which statement correctly describes the scope of the GAAR provisions as set out in Section 178?

GAAR can be applied to any step in, or part of, an arrangement exactly as it applies to the whole arrangement. Section 178(2) expressly allows this, so the authorities are not limited to treating the arrangement only as a single indivisible whole.

  1. AGAAR can be applied only to the whole arrangement and never to a step or part of it
  2. BGAAR can be applied to any step in, or a part of, an arrangement as it applies to the whole arrangementCorrect
  3. CGAAR applies only where the arrangement involves a non-resident party
  4. DGAAR applies only after an advance pricing agreement has been declared void

Explanation

Section 178(2) says the provisions of the Chapter may be applied to any step in, or a part of, the arrangement just as they apply to the arrangement. The first option contradicts this. GAAR is not limited to non-resident cases and has no link to APA voidness.

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