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

Under the Income-tax Act, 2025, if an arrangement is declared to be an impermissible avoidance arrangement, which of the following consequences may be applied?

Section 181 of the Income-tax Act, 2025 allows the arrangement to be treated as if it had not been entered into or carried out, among other consequences. The listed consequences are inclusive, not limited to denial of tax benefit, and do not include prosecution or cancellation of registration.

  1. AOnly the denial of the tax benefit claimed by the assessee, and nothing else
  2. BTreating the arrangement as if it had not been entered into or carried outCorrect
  3. CAutomatic prosecution of the assessee for tax evasion with imprisonment
  4. DCancellation of the assessee's registration under the Companies Act

Explanation

Section 181(2)(b) lists treating the arrangement as if it had not been entered into or carried out among the consequences. The list is inclusive and not limited to denial of benefit, so the first option is wrong, and prosecution or company registration cancellation are not consequences under this section.

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