Impermissible avoidance arrangement
[Section-179 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 179(1) of Income Tax Act 2025
179(1) An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, and it—
- (a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length;
- (b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;
- (c) lacks commercial substance or is deemed to lack commercial substance under section 180, in whole or in part; or
- (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes.
Section 179(2) of Income Tax Act 2025
179(2) An arrangement shall be presumed, unless it is proved to the contrary by the assessee, to have been entered into, or carried out, for the main purpose of obtaining a tax benefit, if the main purpose of a step in, or a part of, the arrangement is to obtain a tax benefit, irrespective of the fact that the main purpose of the whole arrangement is not to obtain a tax benefit.
FAQs on Section 179 of Income Tax Act 2025
What is an impermissible avoidance arrangement under the Income Tax Act, 2025?
It is an arrangement whose main purpose is to obtain a tax benefit and which meets any one of the conditions specified in clauses (a) to (d) of Section 179(1) of the Act.
When will the provisions relating to impermissible avoidance arrangements come into effect?
These provisions will come into effect from 1st April, 2026.
What does it mean for an arrangement to create rights or obligations not ordinarily created between persons dealing at arm’s length?
It means that the terms of the arrangement differ significantly from what unrelated parties would normally agree to in a fair and independent transaction.
What constitutes misuse or abuse of the provisions of this Act under clause (b)?
Misuse or abuse involves using provisions of the Act in a manner that defeats their intended purpose, even if technically legal.
What does it mean for an arrangement to lack commercial substance?
It means the arrangement has little or no economic effect other than the tax benefit. It is further detailed under Section 180.
How can an arrangement be deemed to lack commercial substance under Section 180?
If the arrangement involves elements like round-trip financing, tax-indifferent parties, or disguises the real nature of the transaction, it may be deemed to lack commercial substance.
What does clause (d) of Section 179(1) imply?
It implies that if the arrangement is executed in a manner not normally used for genuine business purposes, it may be considered impermissible.
Is it necessary that the whole arrangement must aim for tax benefit to be considered impermissible?
No. As per Section 179(2), even if only a step or part of the arrangement is primarily for obtaining a tax benefit, the entire arrangement can be presumed to be impermissible.
Who bears the burden of proof regarding the purpose of the arrangement?
The assessee (taxpayer) must prove that the arrangement was not primarily entered into for obtaining a tax benefit.
Can the presumption under Section 179(2) be rebutted?
Yes. The assessee can rebut the presumption by providing evidence that the arrangement or its steps were not mainly for tax benefit.
Is substance-over-form applied under impermissible avoidance arrangement rules?
Yes. The tax authorities can disregard legal form and examine the real substance of the arrangement.
Does Section 179 apply to both domestic and international arrangements?
Yes. It applies to any arrangement that results in a tax benefit under the Act, irrespective of whether it is domestic or international.
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