Section 98 → Section 197
Consequences of impermissible avoidance arrangement
Quick Answer
Section 98 of the Income Tax Act, 1961 (Consequences of impermissible avoidance arrangement) corresponds to Section 197 of the Income-tax Act, 2025, effective 1st April 2026. Status: Retained.
What changed for Section 98
Section 98 of the 1961 Act sets out the rules on consequences of impermissible avoidance arrangement. If GAAR is invoked, the AO can deny tax treaty benefits, recharacterize equity as debt (or vice versa), and disregard any corporate structure.
The new code maps this to Section 197: the provision is retained and renumbered as Section 197 of the Income-tax Act, 2025, applying from 1st April 2026. Retained. The AO possesses the power to completely rewrite the transaction to reflect its true economic reality.
On the ground, changes to Section 98 carry a Critical impact. Severe penal and tax consequences if a taxpayer is caught under GAAR.
Sec 98
Provision Summary
If GAAR is invoked, the AO can deny tax treaty benefits, recharacterize equity as debt (or vice versa), and disregard any corporate structure.
Sec 197
Provision Summary
Retained. The AO possesses the power to completely rewrite the transaction to reflect its true economic reality.
Key Changes & Highlights
- Treaty override power remains explicit and legally binding.
Related Sections
Frequently Asked Questions
What does Section 98 of the Income Tax Act 1961 deal with?
Section 98 of the Income Tax Act, 1961 covers consequences of impermissible avoidance arrangement. If GAAR is invoked, the AO can deny tax treaty benefits, recharacterize equity as debt (or vice versa), and disregard any corporate structure.
Where does Section 98 of the ITA 1961 go under the Income-tax Act, 2025?
Section 98 of the Income Tax Act, 1961 maps to Section 197 of the Income-tax Act, 2025, effective 1st April 2026 (status: Retained). Retained. The AO possesses the power to completely rewrite the transaction to reflect its true economic reality.
Why does the change to Section 98 matter for taxpayers?
The transition impact for Section 98 is rated Critical. Severe penal and tax consequences if a taxpayer is caught under GAAR.
What are the key changes to Section 98 under the Income-tax Act, 2025?
Treaty override power remains explicit and legally binding. These points are specific to Section 98 (Consequences of impermissible avoidance arrangement).
Disclaimer: This mapping of Section 98 (Consequences of impermissible avoidance arrangement) to Section 197 of the Income-tax Act, 2025 is for educational and reference purposes only, based on publicly available drafts and circulars. As Section 98 is currently marked Retained, always confirm its treatment with a qualified Chartered Accountant before filing or making compliance decisions.
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