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CS Professional · Advanced Direct Tax Laws and Practice · Transfer Pricing and General Anti Avoidance Rules (GAAR)

Which statement correctly describes how the Income-tax Act, 2025 allows the GAAR provisions to be applied to an arrangement entered into by an assessee?

GAAR applies irrespective of other provisions of the Act and may be applied to the arrangement, and equally to any step in or part of it. The text sets no condition about non-residents or a minimum benefit amount.

  1. AThey can be applied only to the arrangement as a whole, never to a part
  2. BThey apply to the arrangement, and may also be applied to any step in, or part of, itCorrect
  3. CThey override the Act only where the tax benefit exceeds a stated amount
  4. DThey apply only when the arrangement is entered into with a non-resident

Explanation

Section 178(1) lets an arrangement be declared impermissible irrespective of anything else in the Act, and 178(2) allows the Chapter to be applied to any step in, or part of, the arrangement as it applies to the arrangement. No residency or amount condition appears in the text.

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