General Anti-Avoidance Rule [GAAR]

By : Neha Dhyani

Updated : Jun 14, 2022, 7:58

General Anti-Avoidance Rule [GAAR], is a method for detecting aggressive tax planning, particularly transactions or business arrangements entered into to avoid paying taxes. It was introduced in India due to the Supreme Court's decision favouring VODAFONE. For instance, "A" creates the XYZ corporation to offer product C. Company B pays a 35 per cent tax, but if "A" sold the things directly, he would pay a 40% tax. "A" established the firm solely to avoid paying a 5% tax.

What is General Anti-Avoidance Rule [GAAR]?

General Anti-Avoidance Rule [GAAR], is a method for detecting aggressive tax planning, particularly transactions or business arrangements entered into to avoid paying taxes.

GAAR was introduced in India due to the Supreme Court's decision favouring VODAFONE in the VODAFONE case.

Significance of General Anti-Avoidance Rule [GAAR]

Any tax law's goal is to encourage or incentivise actual investments. The Government will be able to gather more income thanks to General Anti-Avoidance Rule [GAAR]. It allows organisations that manage revenues to obtain more income from all transactions that do not pay the taxes that they owe.

The administration has been emphasising the fiscal deficit and has reduced it from 3.9 per cent to 3.5 per cent by enacting a fiscal consolidation strategy. Tax collections, both direct and indirect, have been increasing. The Income Disclosure Scheme has been implemented to boost tax revenues and direct them to welfare programmes.

The entire General Anti-Avoidance Rule [GAAR] activity would increase the Government's tax revenue, which would help to reduce the fiscal deficit even further.

Important UPSC Topics
IAS ExamUPSC Exam
UPSC Exam PatternIAS Age Limit
UPSC BooksUPSC Syllabus in Hindi
UPSC Admit CardUPSC Prelims
IAS SyllabusUPSC Question Paper
UPSC Cut OffUPSC Mains

Benefits Provided by General Anti-Avoidance Rule [GAAR]

General Anti-Avoidance Rule [GAAR] aids in providing competitive benefits to various businesses that have always been conducting legitimate transactions against those that have been abusing tax loopholes.

As a result, it provides a better economic environment for people to understand that the state exists to attract legitimate investments. This would aid in the ease of conducting business and establish India as an authoritarian government committed to free and fair trade rather than granting tax breaks.

☛ Also Download: Daily Current Affairs PDF

India's Performance on General Anti-Avoidance Rule [GAAR]

Across nations, the growth rate has remained relatively low, and all the countries are just recovering from the hampering Global Financial Crisis, but they have yet to meet expectations.

Several accommodative policies have come into the picture to support nations. Despite that, India was displaying very optimistic results, with a growth rate of 7.1 per cent, which is higher than China's. As a result, this might be the appropriate time for India to introduce GAAR.

People were concerned that because General Anti-Avoidance Rule [GAAR] grants the organisations that manage revenue more authority, the revenue authorities' interpretations of the GAAR rules would be broader and more arbitrary.

Many of the committees have tried to address the problems if the GAAR requirements are enacted. As a result, all committees have worked to ensure that General Anti-Avoidance Rule regulations are applied so that arbitrary interpretations do not result in taxpayer harassment.

More Current Affairs Topics
Economic ContagionElection Commission of India [ECI]
European Union [EU]Electronic Voting Machine [EVM]
European Bank for Reconstruction and Development [EBRD]Ekuverin Exercise
Exchange Rate ManagementExchange-Traded Funds [ETFs]
Fa HienFani Cyclone

FAQs on General Anti-Avoidance Rule [GAAR]

Q.1 When was General Anti-Avoidance Rule [GAAR] implemented?

General Anti-Avoidance Rule [GAAR] came into existence on 1st April 2017.

Q.2 What kind of transactions does the General Anti-Avoidance Rule [GAAR] cover?

General Anti-Avoidance Rule [GAAR] covers the transactions that can have loopholes present.

Q.3 What is the primary purpose of the General Anti-Avoidance Rule [GAAR]?

The primary purpose of the General Anti-Avoidance Rule [GAAR] is to make the entire tax system quite transparent and avoid any leaks that might happen in case of tasks.

Q.4 Which department of the Government formulated the General Anti-Avoidance Rule [GAAR]?

The Department of Revenue, which comes under the finance ministry, is responsible for General Anti-Avoidance Rule [GAAR] formulation.

Q.5 The Indian General Anti-Avoidance Rule [GAAR] is adopted from which country?

The Indian General Anti-Avoidance Rule [GAAR] is quite similar to the South African GAAR.