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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 provision on consequences of an impermissible avoidance arrangement (Section 181), which of the following is a listed consequence the tax authority may apply?

Section 181 allows the arrangement to be treated as if it had not been entered into or carried out, among other consequences like disregarding steps or accommodating parties and reallocating income or deductions. It does not prescribe imprisonment, tax waivers or forced change of entity type.

  1. ATreating the arrangement as if it had not been entered into or carried outCorrect
  2. BMandatory imprisonment of all parties to the arrangement
  3. CAutomatic waiver of tax on the connected party's income
  4. DCompulsory conversion of the company into a partnership firm

Explanation

Section 181(2)(b) lists treating the arrangement as if it had not been entered into or carried out. The text does not provide for imprisonment, waiver of tax, or conversion of entity form. The listed consequences are about disregarding, recharacterising or reallocating for tax purposes.

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