General Anti-Avoidance Rule (GAAR)

General Anti-Avoidance Rule (GAAR)

The General Anti-Avoidance Rule (GAAR) is a provision in tax law designed to prevent taxpayers from using tax avoidance schemes that, while technically compliant with the law, are deemed to contravene the spirit or intent of the law.

GAAR empowers tax authorities to disregard tax benefits arising from such schemes and impose penalties. It focuses on the substance over the form of transactions, assessing whether the primary purpose is to obtain a tax benefit. For example, if a taxpayer engages in a series of transactions that appear legitimate but are primarily designed to reduce tax liability artificially, GAAR can be invoked to challenge those transactions and deny the tax benefits claimed.