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CMA Final · Direct Tax Laws and International Taxation · GAAR

Which of the following is a consequence that may follow when GAAR is invoked against an impermissible avoidance arrangement?

If GAAR applies, the tax authority may determine tax consequences such as disregarding or combining steps of the arrangement, recharacterising amounts, reallocating income or expenses, or treating parties as connected persons. Prosecution, PAN cancellation or winding up are not provided consequences.

  1. ADisregarding or combining any step of the arrangement, or treating parties as connected personsCorrect
  2. BAutomatic prosecution of every director of the company
  3. CCancellation of the assessee's PAN
  4. DCompulsory winding up of the entity

Explanation

On declaring an arrangement impermissible, the tax consequences may include disregarding, combining or recharacterising steps, reallocating income or expenses, treating persons as connected, or disregarding entities. PAN cancellation, winding up and automatic prosecution are not GAAR consequences.

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