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Abstract
General Anti-avoidance Rule (GAAR) was recently introduced in the Indian Tax Law with effect from April 1, 2013. It is a broad rule empowering the Tax Authority to invalidate an arrangement, including disregarding application of tax treaties, if an arrangement is treated as an impermissible avoidance arrangement. he committee has also explained that GAAR is a codification of substance over form rule and the guidelines are meant to provide explanation and clarity on the GAAR provisions of the ITL. Further, in interpreting GAAR, a distinction needs to be made between tax mitigation and tax avoidance. Tax mitigation is where the taxpayer takes advantage of fiscal incentives accorded by tax legislation, and GAAR would not apply in such cases. To explain terms like misuse or abuse, bona fide purpose, lacks commercial substance, the committee has provided 21 illustrations of various structures, and their interpretation on applicability of GAAR on them. A number of examples deal with treaty shopping and abuse of tax treaty situations.