Prime Minister of India in Kannada for UPSC | ಭಾರತದ ಪ್ರಧಾನ ಮಂತ್ರಿ

 General Anti-Avoidance Rule (GAAR) is a set of provisions under Indian tax law aimed at curbing tax avoidance practices that exploit legal loopholes to avoid paying taxes. GAAR gives the tax authorities the power to scrutinize and challenge transactions or arrangements that are primarily designed to avoid tax, even if they follow the letter of the law.

The basic idea is that just because a transaction is structured in a way that adheres to existing tax rules, it doesn’t mean it’s immune to scrutiny. If the primary purpose of the transaction is to avoid taxes, it may be disregarded by tax authorities under GAAR.

Example:

Let’s say a company in India enters into a complex financial arrangement with a foreign entity. The transaction is structured to look like a legitimate business deal, but the real intention is to move profits abroad in a way that avoids paying taxes in India. Although the transaction may technically comply with existing tax laws, its primary aim is to reduce the tax burden, which is the type of situation GAAR is meant to address. The tax authorities can invoke GAAR to reject the arrangement and apply tax as if the transaction didn’t occur in the first place.

GAAR helps maintain fairness in the tax system by preventing such practices, ensuring that taxes are paid based on the real nature of transactions rather than just their legal form.

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