GAAR is incorporated in Direct Tax Code as a very important provision of direct tax policy.

Objective of GAAR: Its objective is to prevent misuse and abuse of tax policy and counter aggressive tax avoidance schemes while ensuring that it is used only in appropriate cases by enabling a review of GAAR. It aims at preventing deals and incomes that are structured only to avoid paying tax. The global practice on antiavoidance rules is that most countries have codified "substance over form" doctrine in the form of GAAR. As many as 30 countries have such rules, including many of the G-20 countries. There are also retrospective tax provisions in these rules in many countries.

GAAR has generated a serious debate in India not only due to its retro tax provisions but also for having created uncertainty in tax policy. These rules along with DTC were referred to a Parliamentary Standing Committee in March, 2012 which observed as follows:

1. GAAR gives arbitrary powers to taxmen to challenge complex deals. Such powers are prone to misuse.
2. Onus lies on the taxpayer to prove that a transaction is genuine.

General Anti Avoidance Rule to curb Aggressive Tax Planning - Direct tax rates have been moderated over the last decade and are in line with international norms. A general anti-avoidance rule assists the tax administration in deterring aggressive tax avoidance in a globalized economy. Such general anti- avoidance rules already form a part of the tax legislation in a number of G- 20 countries.

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