Significance Of GAAR & BEPS

By: Siddharth Dalmia
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GAAR (General Anti-Avoidance Rule), drafted under chapter X-A of the Income Tax Act,1962, applies the substance over form approach in the domain of tax laws. The idea behind GAAR is to tackle an "impermissible avoidance arrangement" (IAA). An IAA means a transaction where the main purpose is to obtain a tax benefit and includes transactions where there is an abuse / misuse of the law or where the transaction lacks commercial substance.

But GAAR provisions can only be seen as an amendment to the Indian domestic law and this point would become significant in the later part of this discussion. The GAAR provisions give tax authorities teeth and claws to enforce the jurisprudence of McDowell's case (AIR 1986 SC 649) in which it was held that tax planning may be legitimate provided it is within the framework of law. However, a colourable device was held to be outside the scope of tax