Skip to content

CA Final · Direct Tax Laws & International Taxation · Tax Planning, Tax Avoidance and Tax Evasion

Under the Income-tax Rules, 2026 (rule 127), a part of an arrangement entered into by Verma Industries Ltd is declared an impermissible avoidance arrangement for the purposes of section 181. How are the tax consequences to be determined?

Where only a part of an arrangement is declared an impermissible avoidance arrangement, the consequences in relation to tax are determined with reference to that part only, as rule 127 of the Income-tax Rules, 2026 provides for the purposes of section 181. The rest of the arrangement is not affected.

  1. AWith reference to the whole arrangement, even if only one part is impermissible
  2. BWith reference to only that part of the arrangement declared impermissibleCorrect
  3. CBy disregarding the entire arrangement and taxing at the maximum marginal rate
  4. DBy reference to the part that gives the lower tax benefit

Explanation

Rule 127 states that where a part of an arrangement is declared an impermissible avoidance arrangement, the tax consequences are determined with reference to that part only. Applying the consequences to the whole arrangement is therefore wrong.

Did you get it right without looking?

One question tells you little. A timed set on Tax Planning, Tax Avoidance and Tax Evasion shows your real accuracy, how long you take and where you lose marks.

Practise Tax Planning, Tax Avoidance and Tax EvasionFree diagnostic mock

More Tax Planning, Tax Avoidance and Tax Evasion questions