Definition
GAAR (General Anti-Avoidance Rules)
GAAR empowers tax authorities to deny tax benefits from arrangements whose main purpose is to avoid tax and that lack commercial substance.
While specific anti-avoidance rules target named loopholes, GAAR is a broad backstop allowing the department to look through an 'impermissible avoidance arrangement' — one designed mainly to obtain a tax benefit and lacking genuine commercial substance — and tax it on its true character.
GAAR can override treaty benefits and was introduced with safeguards, thresholds and an approval panel to prevent arbitrary use. Its existence shapes how businesses structure transactions, pushing them toward arrangements with real economic rationale rather than purely tax-driven design.
Related terms
- DTAA (Double Taxation Avoidance)A Double Taxation Avoidance Agreement is a treaty between two countries that prevents the same income from being taxed twice and allocates taxing rights between them.
- Transfer PricingTransfer pricing rules govern how transactions between related entities, often across borders, must be priced to reflect fair market value for tax purposes.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.