The Assessing Officer says my client's 2015 restructuring is an impermissible avoidance arrangement. Can GAAR reach an arrangement entered into before it came into force, and is there a monetary floor below which it simply does not apply?
Chapter X-A applies in respect of any assessment year beginning on or after 1 April 2018 — that is, from AY 2018-19 — under s.95(2). Rule 10U(2) then makes the Chapter apply to an arrangement irrespective of when it was entered into, so long as the tax benefit is obtained on or after 1 April 2017; but Rule 10U(1)(a) takes out any arrangement where the tax benefit in the relevant assessment year, in aggregate to all parties, does not exceed three crore rupees, and Rule 10U(1)(d) read with the exception in Rule 10U(2) takes out income from the transfer of investments made before 1 April 2017.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2018-04-01, reported as Income-tax Act, 1961, section 95(2); Income-tax Rules, 1962, rule 10U. It bears on section 95, section 95(2), section 96, section 102, section 102(10), section 115AD, section 90, section 90A, section Rule 10U of the Income Tax Act 1961, in Assessment & Scrutiny, Capital Gains and How Tax Law Is Read matters.
These are the two most useful GAAR defences and they are jurisdictional, not merits points. The three-crore threshold is computed on the tax benefit in the RELEVANT ASSESSMENT YEAR, in aggregate to ALL the parties to the arrangement, not to the assessee alone — so a threshold argument requires the whole arrangement to be quantified, and equally a department that has quantified only the assessee's benefit has not discharged the threshold. Rule 10U(3)(iv) tells you how to convert the s.102(10) definition of 'tax benefit' into money: for sub-clauses (a) to (e) it is the amount of tax, and for sub-clause (f), an increase in loss, it is the tax that would have been chargeable had the increase in loss been the total income — so a loss-only arrangement is not outside the threshold, it is grossed up. The grandfathering is narrower than it is usually described: it protects income from the TRANSFER of investments made before 1 April 2017, not every consequence of a pre-2017 arrangement, and Rule 10U(2) is explicit that the arrangement's own date is irrelevant. Note also that clause (1)(d) and sub-rule (2) were both substituted by the Income-tax (Tenth Amendment) Rules 2026 with effect from 31 March 2026; for a year decided on the earlier text the exception has to be run through clause (1)(d), to which sub-rule (2) was then expressed to be 'without prejudice'. Two further carve-outs are easy to miss: Rule 10U(1)(b) exempts a Foreign Institutional Investor that is an assessee, has not taken a s.90 or s.90A treaty benefit and has invested in accordance with the SEBI (Foreign Institutional Investors) Regulations 1995, and Rule 10U(1)(c) exempts a non-resident in relation to investment by way of offshore derivative instruments or otherwise, directly or indirectly, in an FII. Finally, and this is the point on which pre-2018 authority is routinely misused: a decision on tax avoidance decided before AY 2018-19 is not authority on Chapter X-A, because the Chapter did not then apply.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 95(1) provides that notwithstanding anything contained in the Act, an arrangement entered into by an assessee may be declared to be an impermissible avoidance arrangement and the consequence in relation to tax arising therefrom may be determined subject to the provisions of the Chapter. Section 95(2) provides that the Chapter shall apply in respect of any assessment year beginning on or after the 1st day of April, 2018. The Explanation declares for the removal of doubts that the provisions may be applied to any step in, or a part of, the arrangement as they are applicable to the arrangement. Rule 10U(1) disapplies Chapter X-A to four classes: (a) an arrangement where the tax benefit in the relevant assessment year arising, in aggregate, to all the parties to the arrangement does not exceed three crore rupees; (b) a Foreign Institutional Investor who is an assessee, who has not taken the benefit of a section 90 or section 90A agreement, and who has invested in listed or unlisted securities with the prior permission of the competent authority in accordance with the SEBI (Foreign Institutional Investors) Regulations 1995 and such other regulations as may be applicable; (c) a non-resident, in relation to investment made by him by way of offshore derivative instruments or otherwise, directly or indirectly, in a Foreign Institutional Investor; and (d) any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of such investments which were made before the 1st day of April, 2017 by such person. Rule 10U(2) applies the Chapter to any arrangement irrespective of the date on which it was entered into, in respect of the tax benefit obtained from the arrangement on or after 1 April 2017, save for the same category of pre-1 April 2017 investment-transfer income. Rule 10U(3) supplies definitions, including the computation of 'tax benefit' by reference to section 102(10).
Statutory position — no holding is asserted; this entry reproduces statutory and rule text. Chapter X-A operates only for assessment years beginning on or after 1 April 2018; within that period it reaches an arrangement whenever entered into, in respect of tax benefit obtained on or after 1 April 2017, but not where the aggregate tax benefit to all parties in the relevant assessment year is three crore rupees or less, and not to income from the transfer of investments made before 1 April 2017.
The commencement provision and the rule work in opposite directions and must be read together. Section 95(2) is a bar by assessment year; rule 10U(2) is expressly indifferent to the date of the arrangement and keys instead to the date on which the tax benefit is obtained. The result is that an old arrangement is not immune, but the tax benefit it yields before 1 April 2017 is. The two substantive carve-outs then work on different objects: rule 10U(1)(a) works on quantum in a given assessment year, aggregated across all parties, so it is capable of letting one year of an arrangement out while a later year is caught; rule 10U(1)(d) works on the character of the income, protecting only income from the transfer of investments made before the cut-off date. Rule 10U(3)(iv) is what makes the threshold operable, because 'tax benefit' in section 102(10) is defined to include a reduction in total income and an increase in loss as well as a reduction in tax, and those have to be converted into a tax figure before three crore rupees can mean anything.
an arrangement where the tax benefit in the relevant assessment year arising, in aggregate, to all the parties to the arrangement does not exceed a sum of rupees three crore;
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Handle my notice → Ask a CA on WhatsAppChapter X-A applies in respect of any assessment year beginning on or after 1 April 2018 — that is, from AY 2018-19 — under s.95(2). Rule 10U(2) then makes the Chapter apply to an arrangement irrespective of when it was entered into, so long as the tax benefit is obtained on or after 1 April 2017; but Rule 10U(1)(a) takes out any arrangement where the tax benefit in the relevant assessment year, in aggregate to all parties, does not exceed three crore rupees, and Rule 10U(1)(d) read with the exception in Rule 10U(2) takes out income from the transfer of investments made before 1 April 2017. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 95, section 95(2), section 96, section 102, section 102(10), section 115AD, section 90, section 90A, section Rule 10U of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, section 95(2); Income-tax Rules, 1962, rule 10U. These are the two most useful GAAR defences and they are jurisdictional, not merits points. The three-crore threshold is computed on the tax benefit in the RELEVANT ASSESSMENT YEAR, in aggregate to ALL the parties to the arrangement, not to the assessee alone — so a threshold argument requires the whole arrangement to be quantified, and equally a department that has quantified only the assessee's benefit has not discharged the threshold. Rule 10U(3)(iv) tells you how to convert the s.102(10) definition of 'tax benefit' into money: for sub-clauses (a) to (e) it is the amount of tax, and for sub-clause (f), an increase in loss, it is the tax that would have been chargeable had the increase in loss been the total income — so a loss-only arrangement is not outside the threshold, it is grossed up. The grandfathering is narrower than it is usually described: it protects income from the TRANSFER of investments made before 1 April 2017, not every consequence of a pre-2017 arrangement, and Rule 10U(2) is explicit that the arrangement's own date is irrelevant. Note also that clause (1)(d) and sub-rule (2) were both substituted by the Income-tax (Tenth Amendment) Rules 2026 with effect from 31 March 2026; for a year decided on the earlier text the exception has to be run through clause (1)(d), to which sub-rule (2) was then expressed to be 'without prejudice'. Two further carve-outs are easy to miss: Rule 10U(1)(b) exempts a Foreign Institutional Investor that is an assessee, has not taken a s.90 or s.90A treaty benefit and has invested in accordance with the SEBI (Foreign Institutional Investors) Regulations 1995, and Rule 10U(1)(c) exempts a non-resident in relation to investment by way of offshore derivative instruments or otherwise, directly or indirectly, in an FII. Finally, and this is the point on which pre-2018 authority is routinely misused: a decision on tax avoidance decided before AY 2018-19 is not authority on Chapter X-A, because the Chapter did not then apply. If it applies to you, the first step is this: Fix the assessment year first. If the year under assessment is AY 2017-18 or earlier, Chapter X-A does not apply at all and the notice is answerable on s.95(2) alone.
Section 95(1) provides that notwithstanding anything contained in the Act, an arrangement entered into by an assessee may be declared to be an impermissible avoidance arrangement and the consequence in relation to tax arising therefrom may be determined subject to the provisions of the Chapter. Section 95(2) provides that the Chapter shall apply in respect of any assessment year beginning on or after the 1st day of April, 2018. The Explanation declares for the removal of doubts that the provisions may be applied to any step in, or a part of, the arrangement as they are applicable to the arrangement. Rule 10U(1) disapplies Chapter X-A to four classes: (a) an arrangement where the tax benefit in the relevant assessment year arising, in aggregate, to all the parties to the arrangement does not exceed three crore rupees; (b) a Foreign Institutional Investor who is an assessee, who has not taken the benefit of a section 90 or section 90A agreement, and who has invested in listed or unlisted securities with the prior permission of the competent authority in accordance with the SEBI (Foreign Institutional Investors) Regulations 1995 and such other regulations as may be applicable; (c) a non-resident, in relation to investment made by him by way of offshore derivative instruments or otherwise, directly or indirectly, in a Foreign Institutional Investor; and (d) any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any person from transfer of such investments which were made before the 1st day of April, 2017 by such person. Rule 10U(2) applies the Chapter to any arrangement irrespective of the date on which it was entered into, in respect of the tax benefit obtained from the arrangement on or after 1 April 2017, save for the same category of pre-1 April 2017 investment-transfer income. Rule 10U(3) supplies definitions, including the computation of 'tax benefit' by reference to section 102(10). The matter was decided on 2018-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Statutory position — no holding is asserted; this entry reproduces statutory and rule text. Chapter X-A operates only for assessment years beginning on or after 1 April 2018; within that period it reaches an arrangement whenever entered into, in respect of tax benefit obtained on or after 1 April 2017, but not where the aggregate tax benefit to all parties in the relevant assessment year is three crore rupees or less, and not to income from the transfer of investments made before 1 April 2017.
The commencement provision and the rule work in opposite directions and must be read together. Section 95(2) is a bar by assessment year; rule 10U(2) is expressly indifferent to the date of the arrangement and keys instead to the date on which the tax benefit is obtained. The result is that an old arrangement is not immune, but the tax benefit it yields before 1 April 2017 is. The two substantive carve-outs then work on different objects: rule 10U(1)(a) works on quantum in a given assessment year, aggregated across all parties, so it is capable of letting one year of an arrangement out while a later year is caught; rule 10U(1)(d) works on the character of the income, protecting only income from the transfer of investments made before the cut-off date. Rule 10U(3)(iv) is what makes the threshold operable, because 'tax benefit' in section 102(10) is defined to include a reduction in total income and an increase in loss as well as a reduction in tax, and those have to be converted into a tax figure before three crore rupees can mean anything. In the words reproduced by the source cited on this page: "an arrangement where the tax benefit in the relevant assessment year arising, in aggregate, to all the parties to the arrangement does not exceed a sum of rupees three crore;"
It was decided by the CBDT Circulars & Instructions on 2018-04-01 and is reported as Income-tax Act, 1961, section 95(2); Income-tax Rules, 1962, rule 10U. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 95, section 95(2), section 96, section 102, section 102(10), section 115AD, section 90, section 90A, section Rule 10U, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Statutory position — no holding is asserted; this entry reproduces statutory and rule text. Chapter X-A operates only for assessment years beginning on or after 1 April 2018; within that period it reaches an arrangement whenever entered into, in respect of tax benefit obtained on or after 1 April 2017, but not where the aggregate tax benefit to all parties in the relevant assessment year is three crore rupees or less, and not to income from the transfer of investments made before 1 April 2017. It arises in Assessment & Scrutiny, Capital Gains and How Tax Law Is Read matters, on section 95, section 95(2), section 96, section 102, section 102(10), section 115AD, section 90, section 90A, section Rule 10U of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Quantify the tax benefit for the relevant assessment year in aggregate for ALL parties to the arrangement, using rule 10U(3)(iv): the amount of tax for sub-clauses (a) to (e) of section 102(10), and for an increase in loss under sub-clause (f), the tax that would have been chargeable had that increase been the total income. If the aggregate is three crore rupees or less, take rule 10U(1)(a) as a threshold objection in the reply to the rule 10UB(1) notice, before any argument on the merits of the arrangement. Where the income under charge arises from a transfer, establish the date the investment transferred was MADE. If it was made before 1 April 2017, rule 10U(1)(d) and the exception in rule 10U(2) take that income out — and keep the acquisition documents, because the date of making the investment, not the date of the arrangement, is the operative fact. Do not argue that a pre-2017 arrangement is outside Chapter X-A simply because it is old: rule 10U(2) applies the Chapter to an arrangement irrespective of when entered into, in respect of the tax benefit obtained on or after 1 April 2017. For an FII or a non-resident holding offshore derivative instruments, check rule 10U(1)(b) and (c) before anything else — but note that the FII exemption is lost if a section 90 or section 90A treaty benefit has been taken. Do not cite a pre-AY-2018-19 avoidance decision as authority on Chapter X-A; where the department does so, answer it with section 95(2).
Still good law. This is the statutory and rule text, not a decision about it. Section 95 was read on a departmental page stamped Year 2022 and section 102 on a page stamped Year 2025; rule 10U carries no year stamp and could not be dated. Later treatment was NOT checked: no search was run for a decision construing rule 10U's threshold or its grandfathering, and none is asserted to exist or not to exist. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Dating, corrected. Departmental rule pages carry no 'Year:' stamp, so rule 10U cannot be dated that way — but the /w/rule-10u page does print amendment footnotes, and they date the two provisions that matter. Footnote 54 attaches to sub-rule (1)(d) and footnote 55 to sub-rule (2); each reads 'Substituted by the IT (Tenth Amdt.) Rules, 2026, w.e.f. 31-3-2026', and each sets out the prior version 'as amended by the IT (Sixteenth Amdt.) Rules, 2016, w.e.f. 22-6-2016'. The substitution is not cosmetic: before 31 March 2026 sub-rule (2) read 'Without prejudice to the provisions of clause (d) of sub-rule (1), the provisions of Chapter X-A shall apply to any arrangement, irrespective of the date on which it has been entered into, in respect of the tax benefit obtained from the arrangement on or after the 1st day of April, 2017', so the grandfathering carve-out now written into sub-rule (2) as an express exception was previously carried only by clause (1)(d). The three-crore figure in sub-rule (1)(a) carries no footnote and is therefore not dated by the page. Section 95 was read on /w/section-95-17, which carries a 'Year: 2022' stamp — an earlier vintage than the 2025 pages used for sections 96 to 102 in this batch; the text read there already carries the 1 April 2018 date inserted by the Finance Act 2015, and no later amendment to section 95 was found, but the reader should treat the section 95 text as stated from a 2022-stamped page. Rule 10U(2) as printed contains an apparent typographical slip — 'except for that income which accrues of arises to' — which is reproduced here unaltered rather than corrected; the prior version quoted in footnote 54 carries a different slip, 'by any person form transfer of investments'. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Statutory position — no holding is asserted; this entry reproduces statutory and rule text. Chapter X-A operates only for assessment years beginning on or after 1 April 2018; within that period it reaches an arrangement whenever entered into, in respect of tax benefit obtained on or after 1 April 2017, but not where the aggregate tax benefit to all parties in the relevant assessment year is three crore rupees or less, and not to income from the transfer of investments made before 1 April 2017.
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