Amended and updated notes on section 96 of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to impermissible avoidance arrangement.
Chapter XA (Sections 95 to 102) of the Income Tax Act 1961 deals with the provisions related to General Anti-Avoidance Rule. Section 96 of IT Act 1961-2020 provides for impermissible avoidance arrangement.
Recently, we have discussed in detail section 95 (Applicability of General Anti-Avoidance Rule) of IT Act 1961. Today, we learn the provisions of section 96 of Income-tax Act 1961. The amended provision of section 96 is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 96 of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-96: Impermissible avoidance arrangement
Section 96(1) of Income Tax Act
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 97, 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 96(2) of Income Tax Act
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, notwithstanding the fact that the main purpose of the whole arrangement is not to obtain a tax benefit.