The Income Tax Bill 2025 proposes significant changes to General Anti Avoidance Rules (GAAR), allowing tax authorities to issue reassessment notices for earlier tax years that were previously time-barred.

• Under current rules, tax authorities can issue reassessment notices only within 5 years and 3 months from the end of the assessment year if the under-reported income is ₹50 lakh or more.
• If the time limit expires, reassessment is not allowed.

Key Reassessment Notices under GAAR

• The new proposal allows reassessment notices for tax years that have crossed the time limit if the case is under GAAR provisions.
• This means authorities can go back several years to review and reassess transactions aimed at tax avoidance.
• Additional Changes to GAAR Cases
• • GAAR Panel’s decision will now be officially recognized as “information indicating escaped income”, making reassessments stronger against legal challenges.
  • Tax authorities will not be required to provide an opportunity of being heard before issuing reassessment notices in GAAR cases.

About GAAR

• It is a regulatory measure aimed at curbing aggressive tax planning, especially in cases where transactions are structured solely to avoid taxes.
• It prevents individuals and companies from exploiting legal gaps to avoid paying their fair share of taxes.
• It specifically targets business arrangements that are created primarily to reduce tax liability.
• Objectives of GAAR
  • To ensure fairness in tax transactions and prevent tax avoidance.
  • To stop the use of complex financial structures designed to avoid taxes.
• GAAR Implementation Date in India
  • GAAR was officially implemented in India on April 1, 2017.
  • It was first proposed in 2009 under the Direct Tax Code (DTC) but was introduced later.
  • The decision to implement GAAR was influenced by the Vodafone-Hutchison Essar deal, which took place in the Cayman Islands and led to concerns about tax avoidance.

GAAR Provisions and Powers

• It gives tax authorities broad powers to declare a transaction as an Impermissible Avoidance Arrangement (IAA) if it is executed solely for tax avoidance.
• Income from such transactions can be recomputed, leading to additional tax liabilities.
• GAAR cases require approval from an Approving Panel, headed by a High Court judge (serving or retired).
• GAAR allows authorities to challenge tax avoidance spanning multiple years in one go.

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