What is GAAR (General Anti-Avoidance Rule) UPSC - Target IAS Kannada
GAAR is a set of tax rules that allow the government to stop people or companies from avoiding tax by creating fake or artificial transactions.
What is GAAR (General Anti-Avoidance Rule) UPSC - Target IAS Kannada GAAR – General Anti-Avoidance Rule What is GAAR? GAAR stands for General Anti-Avoidance Rule . It is a set of tax rules that allow the government to stop people or companies from avoiding tax by creating fake or artificial transactions. 👉 In simple words: If your main purpose of a deal is only to save tax, GAAR can cancel it. Example: Foreign Company using Mauritius Route Step 1 – The Setup A foreign company ( ABC Ltd. in USA ) wants to invest in an Indian IT company. If it invests directly in India, it must pay 20% capital gains tax when selling shares. To save tax, ABC Ltd. creates a fake shell company in Mauritius ( ABC Mauritius Ltd. ) because India–Mauritius treaty earlier allowed 0% capital gains tax . Step 2 – The Transaction Instead of ABC USA directly buying Indian company shares, ABC Mauritius buys them. Years later, when ABC Mauritius sells these Indian shares at a profit: Under the treaty, no tax is paid in India . In reality, the money belongs to ABC USA, not Mauritius. Step 3 – Before GAAR T…
