Section 178
Section 178: applicability of the General Anti-Avoidance Rule (GAAR)
Section 178 is the opening provision of Chapter XI, the General Anti-Avoidance Rule (GAAR). It establishes that, irrespective of anything else in the Act, an arrangement entered into by an assessee may be declared an impermissible avoidance arrangement, with tax consequences determined under this Chapter - and that this can apply to a step in, or part of, an arrangement, not just the whole of it.
What Section 178 provides
Irrespective of anything else in the Act, an arrangement entered into by an assessee may be declared an impermissible avoidance arrangement, and the tax consequences arising from it may be determined subject to the provisions of Chapter XI.
The provisions of Chapter XI may be applied to any step in, or a part of, the arrangement, in the same way as they apply to the arrangement as a whole.
Frequently asked questions
What does GAAR under Section 178 allow the tax authorities to do?
It allows an arrangement entered into by an assessee to be declared an impermissible avoidance arrangement, with the tax consequences determined as provided in Chapter XI (General Anti-Avoidance Rule).
Can GAAR apply to only part of an arrangement?
Yes - Section 178(2) says the Chapter's provisions may be applied to any step in, or a part of, the arrangement, just as they apply to the whole arrangement.
Related sections
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