A new proposal in the Income Tax Bill 2025 allows reassessment notices under GAAR for time-barred years if the GAAR Panel approves an Impermissible Avoidance Arrangement. The Panel's explicit role eliminates mandatory hearings, and multi-year challenges can be addressed collectively, thereby expanding tax authorities’ enforcement power against aggressive tax avoidance.
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According to a new proposal in the Income Tax Bill 2025, income tax authorities may be able to issue reassessment notices under the General Anti-Avoidance Rules (GAAR).
GAAR is an anti-tax avoidance law aimed at curbing tax evasion and preventing tax leaks. It targets aggressive tax planning, especially transactions or business arrangements entered into primarily to avoid tax, even if they are legally compliant on the surface.
It came into effect on April 1, 2017, under the Income Tax Act, 1961. The provisions empower tax authorities to treat any arrangement or transaction as an "Impermissible Avoidance Arrangement" (IAA) and recompute income and tax liabilities accordingly.
To prevent misuse, GAAR can only be invoked after obtaining permission from an Approving Panel, which is headed by a serving or retired High Court judge.
Extended Reassessment Timeline
Currently, reassessment notices for underreported income exceeding ₹50 lakh must be issued within 5 years and 3 months from the end of the assessment year (AY).
The new bill permits notices to be issued for time-barred years if the GAAR Panel has determined an arrangement to be an Impermissible Avoidance Arrangement (IAA), provided the case was referred to the panel within the original reassessment deadline for the primary AY.
GAAR Panel’s Role
The GAAR Panel, headed by a High Court judge, must approve GAAR invocations to prevent misuse.
Under the proposal, the Panel’s directions are now explicitly recognized as valid grounds for reassessment, and taxpayers are exempted from the mandatory hearing process before notices are issued.
Multi-Year Challenges
GAAR allows challenging arrangements spanning multiple years in a single proceeding. The amendment ensures that even if some years become time-barred during the Panel’s deliberations, notices can still be issued for those years.
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