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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, which of the following features, if present in an arrangement, causes it to be deemed to lack commercial substance?

An arrangement involving round trip financing is deemed to lack commercial substance. Short duration, payment of taxes and the provision of an exit route may be relevant but are not sufficient on their own to decide that an arrangement lacks commercial substance.

  1. AThe arrangement has existed for less than three years
  2. BThe arrangement involves round trip financingCorrect
  3. CThe arrangement involves payment of taxes by a party in India
  4. DThe arrangement provides an exit route by transfer of a business

Explanation

Round trip financing is expressly listed among the features that deem an arrangement to lack commercial substance. The other three (duration, payment of taxes, and an exit route) may be relevant but are stated not to be sufficient by themselves for deciding the question.

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