Introduction: GAAR and Its Growing Importance
India’s approach to tackling aggressive tax avoidance has evolved. The GAAR in India, first rooted in Section 97 of the Income-tax Act, 1961, is now restructured under Clause 180 of the Income Tax Bill, 2025.
What is GAAR in India?
It empowers tax authorities to deny tax benefits for arrangements primarily made to gain tax advantages, without valid commercial substance.
Key purposes:
- Prevent artificial transactions
- Target tax-motivated corporate structures
- Strengthen fair tax collection
How the Income Tax Bill, 2025 Recasts GAAR (Clause 180)
Here’s a simple breakdown:
| Feature | Section 97 (1961) | Clause 180 (2025 Bill) |
|---|---|---|
| Definition Focus | Broader interpretation | Tightened definition, clarified thresholds |
| Application Threshold | ₹3 crore | ₹2 crore (proposed) |
| Authority Involvement | Approving Panel mandatory | Direct Commissioner review + appeal |
| Commercial Substance | Emphasis on form | Emphasis on actual economic purpose |
Legal Reference: Draft Income Tax Bill, 2025 (Clause 180); CBDT Press Release dated 24 March 2025.
Section 97 of the Income-tax Act, 1961: Quick Recap
Section 97 defined “impermissible avoidance arrangements” broadly, based on criteria like misuse of provisions, lack of commercial substance, and abuse of tax laws.
Key Features under Section 97:
- Tax benefit as the main purpose
- Misuse or abuse of the Act
- Lack of genuine business purpose
- Round-tripping transactions
Why It Matters: Practical Impact for Indian Taxpayers
- Lower thresholds mean more businesses and individuals may fall under GAAR scrutiny.