GAAR: Lessons from recent Telangana HC decisions and their future implications

The General Anti-Avoidance Rules (“GAAR”) is the most stringent anti-abuse measures under the Indian Income-tax law. Ever since its introduction, several aspects of GAAR continue to generate uncertainty, including the scope of the expression “arrangement”, the application of the “main purpose” test, the role of commercial substance, and the circumstances in which a tax benefit may be denied.

At the same time, important questions continue to arise regarding the relationship between GAAR and specific anti-avoidance rules (“SAAR”), the interaction between domestic GAAR and the Principal Purpose Test (“PPT”) under tax treaties, and the dividing line between legitimate tax planning and impermissible tax avoidance.

Series of decisions of the Telangana High Court, including the recent decision in the case of EKGE Retail LLP, have brought renewed focus to the scope of anti-avoidance rules and the boundaries of legitimate tax planning. Through these decisions and other practical illustrations, the session will explore the circumstances in which GAAR, SAAR and the PPT may apply, and the key principles that may constrain their invocation.

Key discussion points:

• GAAR, SAAR and PPT: where do the boundaries lie?

• When does legitimate tax planning become impermissible tax avoidance?

• “Arrangement” definition, “main purpose” test and “commercial substance” test: how should tax authorities and taxpayers evaluate it?

• Recent High Court rulings: key principles emerging from judicial scrutiny of GAAR

• Judicial review of GAAR proceedings: when will High Courts intervene?

• Treaty shopping, PPT and evolving anti-abuse standards

• Implications for restructurings, investment structures and cross-border arrangements

• Best practices for documentation, governance and GAAR risk management

Speakers -

• Ravi Sawana, Partner

• Neha Sharma, Associate Partner