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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, in determining whether round trip financing exists, which of the following is correct?

No regard is to be had to whether the funds can be traced to funds transferred to or received by any party. Time, sequence and mode of transfer are also disregarded. What matters is the lack of any substantial commercial purpose other than the tax benefit.

  1. ARegard is not to be had to whether the funds can be traced to funds transferred to or received by any partyCorrect
  2. BThe funds must be traceable to the original funds received
  3. CThe transfers must occur in a fixed sequence
  4. DThe transfers must be made only through banking channels

Explanation

Section 180(2) requires funds to be transferred among parties through a series of transactions with no substantial commercial purpose other than a tax benefit. It expressly excludes regard to traceability, the time or sequence of transfers, and the means, manner or mode of transfer. Therefore the traceability, sequence and banking-channel conditions are wrong.

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