Section 179
Section 179: what makes an arrangement an impermissible avoidance arrangement
Section 179 defines the central concept of GAAR - the "impermissible avoidance arrangement" - as one whose main purpose is to obtain a tax benefit, and which also meets at least one of four further tests, and it sets out a presumption that helps the tax authorities establish that main-purpose element.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
The definition
An impermissible avoidance arrangement means an arrangement, the main purpose of which is to obtain a tax benefit, and it:
- creates rights, or obligations, which are not ordinarily created between persons dealing at arm's length;
- results, directly or indirectly, in the misuse or abuse of the provisions of the Act;
- lacks commercial substance, or is deemed to lack commercial substance under Section 180, in whole or in part; or
- is entered into, or carried out, by means or in a manner not ordinarily employed for bona fide purposes.
Presumption on main purpose
An arrangement is presumed - unless the assessee proves otherwise - 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, even if the main purpose of the whole arrangement is not to obtain a tax benefit.
Frequently asked questions
What are the four tests, one of which an arrangement must meet, to be an impermissible avoidance arrangement?
Creating non-arm's-length rights or obligations; misuse or abuse of the Act's provisions; lacking (or being deemed to lack) commercial substance under Section 180; or being carried out by means not ordinarily employed for bona fide purposes - in addition to having tax benefit as its main purpose.
Who has to prove that an arrangement's main purpose was not a tax benefit?
The assessee - Section 179(2) presumes tax-benefit purpose where a step or part of an arrangement has tax benefit as its main purpose, unless the assessee proves otherwise.
Related sections
Want this applied to your actual filing, not just explained?
Get a GAAR risk review of your arrangementLast updated 9 September 2026