INCOME TAX BILL 2025: GAAR PROVISIONS AND REASSESSMENT RULES

GS2 GOVERNANCE: 

The Income Tax Bill 2025 introduces key amendments to the General Anti-Avoidance Rules (GAAR), expanding the powers of tax authorities to issue reassessment notices beyond the current time limits. This move aims to combat tax avoidance more effectively.

What is GAAR?

• GAAR is a framework to prevent tax avoidance through impermissible arrangements.
• It allows authorities to reclassify transactions as Impermissible Avoidance Arrangements (IAAs), leading to income re-computation.
• A GAAR Approving Panel, headed by a High Court judge, oversees its implementation.

Proposed Changes in Reassessment Notices

• Currently, reassessment notices must be issued within 5 years and 3 months if under-reported income exceeds ₹50 lakh.
• The new proposal removes this time limit, allowing tax authorities to reassess even time-barred years.
• This change addresses multi-year avoidance schemes.

Safeguards Against Misuse

• The GAAR Panel’s decision will be a valid indicator of escaped income.
• No hearing is required before issuing reassessment notices in GAAR cases, streamlining the process.
• These safeguards ensure targeted and legitimate use of GAAR provisions.

Implications for Tax Authorities

• Authorities can reassess multiple tax years before and after the current assessment year.
• This is crucial for cases where determining an IAA takes longer than usual.
• Reduces the risk of procedural delays preventing legitimate reassessments.

Example Scenario

• A case is referred to the GAAR Panel on May 31, 2023, for the 2018-19 assessment year.
• If GAAR is invoked for both 2018-19 and 2017-18, reassessment notices can now be issued for 2017-18, even if the time limit has expired.
• This ensures that past income escaping assessment is still brought under scrutiny.