The Central Board of Direct Taxes has notified the Income-tax (Tenth Amendment) Rules, 2026, introducing important clarifications to the applicability of General Anti-Avoidance Rules (GAAR) under the Income-tax Act, 1961.
The notification (G.S.R. 240(E)) dated 31st March 2026 amends Rule 10U of the Income-tax Rules, 1962, providing relief to taxpayers with investments made before 1st April 2017.
Key Highlights of the Amendment
1. Relief for Pre-2017 Investments
The amendment clearly states that income arising from the transfer of investments made before 1st April 2017 will be excluded from GAAR provisions.
This brings clarity and certainty for taxpayers holding legacy investments.
2. Revised Scope of GAAR Applicability
Under the revised Rule 10U(2):
- GAAR provisions under Chapter X-A of the Income-tax Act will apply to:
- Any arrangement, irrespective of when it was entered into
- If tax benefit arises on or after 1st April 2017
- Exception:
Income from transfer of investments made before 1st April 2017 will not attract GAAR , even if realized later.
3. Immediate Effect
The rules have come into force from the date of publication in the Official Gazette , i.e., 31st March 2026 .
Impact Analysis
This amendment is a taxpayer-friendly clarification aimed at:
- Reducing litigation related to GAAR applicability
- Protecting grandfathered investments made before GAAR implementation
- Enhancing certainty in tax treatment of legacy transactions
Experts believe this move aligns with the government's broader objective of improving the ease of doing business and maintaining investor confidence.
Background Context
GAAR provisions were introduced to curb aggressive tax avoidance arrangements and became effective from 1st April 2017. However, ambiguity persisted regarding their applicability to older investments, this amendment addresses that gap.
Conclusion
The latest notification by the CBDT offers much-needed clarity by ensuring that pre-2017 investments remain outside the purview of GAAR , even if gains are realized later. This is expected to bring relief to investors and reduce disputes in tax assessments.
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