On 31 March 2026, the Central Board of Direct Taxes (CBDT) has notified the Income-tax (Amendment) Rules, 2026, introducing revisions to the General Anti-Avoidance Rule (GAAR) framework.
Key Points:
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Effective from 1 April 2026, the amendment revises Rule 128 of the Income-tax Rules, 2026.
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Rule 128 relates to the General Anti-Avoidance Rule and addresses the treatment of pre-GAAR investments in the context of evolving tax structures and continued income from legacy assets.
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The amendment substitutes Rule 128(1)(d) to explicitly exclude from the scope of GAAR any income arising from the transfer of investments made before 1 April 2017, thereby safeguarding such grandfathered investments from anti-avoidance scrutiny.
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Clause (2) of Rule 128 is substituted to lay down the general principle that:
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GAAR applies to any arrangement, regardless of when it was entered
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GAAR applies if the tax benefit is obtained on or after 1 April 2017.
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The GAAR exclusion applies only to income from investments made by the same person before 1 April 2017 and does not extend to subsequent investors.
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The exclusion is limited to the specified income and does not provide GAAR immunity to all tax benefits arising from the arrangement.
[Income-tax (Amendment) Rules, 2026, published on 31-3-2026]
