What is the General Anti-Avoidance Rule (GAAR) ?

June 1, 2025 by rawan239

What is the General Anti-Avoidance Rule (GAAR) ?

[amp_mcq option1=”GAAR is a set of rules aimed at curbing aggressive tax planning.” option2=”GAAR is a set of rules aimed at curbing money laundering by Indians to foreign countries.” option3=”GAAR is a set of rules aimed at regulating investments by Indians in foreign countries.” option4=”GAAR is a set of rules aimed at regulating investments by foreigners in India.” correct=”option1″]

This question was previously asked in

UPSC Combined Section Officer – 2024

Download PDF Attempt Online

The correct answer is GAAR is a set of rules aimed at curbing aggressive tax planning (A).

The General Anti-Avoidance Rule (GAAR) is a tax legislation designed to tackle aggressive tax planning arrangements that are primarily aimed at obtaining a tax benefit, without commercial substance or purpose other than tax avoidance. It gives tax authorities the power to deny tax benefits that arise from such arrangements.

GAAR is distinct from rules targeting money laundering (which falls under anti-money laundering laws like PMLA in India) or rules regulating cross-border investments (which are part of FEMA and RBI regulations). GAAR specifically focuses on arrangements considered ‘impermissible avoidance arrangements’ under the Income Tax Act, where the main purpose is to obtain a tax benefit and the arrangement lacks commercial rationale.

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