Income tax authorities may now be able to issue reassessment notices under General Anti Avoidance Rules (GAAR) for tax years that fall outside the time limits prescribed for issuing such notices, if the new proposal under the Income Tax Bill 2025 is greenlighted.
Under current rules, reassessment notices where the under-reported income is Rs ₹50 lakh or more, have to be issued within 5 years and 3 months from the end of the assessment year.
The new proposal would mean that tax authorities can go back several years to assess all transactions or arrangements that are deemed to be executed solely for tax avoidance purposes and to which GAAR provisions can be applied.
GAAR provisions
GAAR provisions give wide powers to tax authorities to treat any arrangement or a transaction as an ‘impermissible avoidance arrangement’ (IAA) and re-compute income and consequent tax implications. Among the safeguards incorporated to ensure that GAAR provisions are not misused is the requirement that GAAR will be invoked only after obtaining permission from an Approving Panel, headed by a serving or retired judge of a High Court.
Under GAAR, an IAA that spans multiple years can be challenged at one go. But there may be instances where, by the time the GAAR Panel determines an arrangement to be an IAA and specifies the relevant years, some of the tax years involved may have become time-barred for issuing the reassessment notice, said Ashish Karundia, Founder, Ashish Karundia &.Co.
According to him, the proposed change tries to address this issue and allows for a reassessment notice to be issued for those time-barred years as well. This is provided that the matter is referred to the GAAR Panel within the outer time limit of the reassessment notice of the subject year.
“This change is both reasonable and fair,” said Karundia.
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To prevent any challenges to reassessment, the GAAR Panel’s directions are now explicitly recognised as information indicating that income has escaped assessment. GAAR cases are also now exempt from the mandatory requirement to provide the opportunity of being heard before a reassessment notice is issued, said Karundia.
Harshal Bhuta, Partner, PR Bhuta & Co, said the amendment will enable reassessment for years prior or subsequent to the year of assessment depending upon the time consumed in approving a particular arrangement as IAA. Categorising a particular arrangement as IAA can be time-consuming given the procedures involved such as collecting information from foreign jurisdictions, he said.
Let’s assume a matter is referred to the GAAR Panel on May 31, 2023 for AY18-19. Subsequently, directions approving GAAR invocation are issued for AY18-19 and AY17-18 on November 30, 2023. The outer time limit for issuing notices for AY18-19 is June 30, 2024. Now if the income for AY17-18 has escaped as well, the assessing officers will not be able to issue a notice as the outer time limit for AY17-18 (June 30, 2023) would have lapsed. Under the proposed tax laws, however, the AOs will be able to issue a notice as the matter has been referred to the GAAR Panel by June 30, 2023.
