The proposed Income Tax Bill, 2025 grants income tax authorities the power to issue reassessment notices under General Anti Avoidance Rules (GAAR). This aims to curb aggressive tax planning and tax evasion.
By integrating GAAR provisions into the Income Tax Bill, 2025, the government seeks to tighten tax regulations and ensure a more transparent tax system while discouraging abusive tax avoidance schemes.
About GAAR
- GAAR (General Anti Avoidance Rules) is an anti-tax avoidance framework designed to prevent tax evasion and revenue loss.
- It acts as a deterrent against tax leaks by targeting transactions structured primarily to avoid tax obligations.
- First proposed by the Parthasarathy Shome Committee, GAAR was implemented on April 1, 2017, under the Income Tax Act, 1961.
- It empowers tax authorities to scrutinize transactions that are prima facie legal but lead to significant tax reduction.
- GAAR specifically targets aggressive tax planning by companies that exploit legal loopholes to minimize tax liability.
Key Provisions of GAAR in Tax Reassessment
- Expanded Powers: Tax authorities can reassess income and impose tax implications if an arrangement is deemed an Impermissible Avoidance Arrangement (IAA).
- Reassessment Time Limit: Under current rules, reassessment notices must be issued within 5 years and 3 months from the end of the assessment year if the under-reported income is ₹50 lakh or more.
- Identification of Tax Avoidance: GAAR provisions allow authorities to reclassify transactions, deny tax benefits, and recompute income.
Significance of GAAR in the Proposed Income Tax Bill, 2025
- Strengthens Anti-Tax Avoidance Measures: Helps prevent artificial arrangements aimed at tax evasion.
- Enhances Government Revenue: Reduces aggressive tax planning practices that lead to revenue loss.
- Expands Tax Administration Powers: Grants greater authority to tax officers in identifying and addressing tax avoidance.