Income Tax Law | GAAR | Updated 26 October 2026

Section 99 of the Income-tax Act, 1961: Treatment of Connected Persons and Accommodating Parties

Section 99 explains how connected persons, accommodating parties and corporate structures may be treated when determining whether a tax benefit exists under India's General Anti-Avoidance Rule (GAAR). The corresponding provision in the Income-tax Act, 2025 is Section 182.

Legal position: Section 99 forms part of Chapter X-A of the Income-tax Act, 1961. For the tax years governed by the Income-tax Act, 2025, the corresponding rule appears in Chapter XI, Section 182, effective from 1 April 2026. The applicable enactment and transition provisions must be checked for the relevant period.

Section 99: Statutory provision

The following reproduces the substantive four limbs of Section 99 of the Income-tax Act, 1961, with its original clause numbering.

For the purposes of this Chapter, in determining whether a tax benefit exists,-

the parties who are connected persons in relation to each other may be treated as one and the same person;
any accommodating party may be disregarded;
the accommodating party and any other party may be treated as one and the same person;
the arrangement may be considered or looked through by disregarding any corporate structure.

Meaning and scope of Section 99

The section gives effect to a substance-over-form approach for determining the existence of a tax benefit in a potentially impermissible avoidance arrangement. The four treatments are permissive (the legislation says "may"), not automatic. Section 99 does not by itself mean that every transaction between related parties is impermissible or that a company loses its separate legal personality for all purposes.

1. Connected persons may be treated as one person

Where parties are connected directly or indirectly, the tax analysis may consider them as a single person to determine whether a tax benefit arises. The definition of "connected person" is contained in Section 102(4) of the 1961 Act and Section 184(5) of the 2025 Act. It includes specified relatives, directors, partners, members and persons with substantial business interests, subject to the statutory conditions.

2. An accommodating party may be disregarded

An accommodating party is broadly a participant whose main purpose in the arrangement is to secure a tax benefit for the assessee, directly or indirectly, even if that participant is not connected to another party. See Section 97(3) and Section 102 of the 1961 Act, and Section 184(1) of the 2025 Act.

3. An accommodating party may be combined with another party

Rather than merely ignoring an intermediary, the authorities may treat the accommodating party and another participant as the same person for the limited GAAR analysis of whether a tax benefit exists.

4. Corporate structures may be looked through

Where the facts justify a GAAR analysis, an interposed company or other corporate structure may be disregarded to identify the substantive parties and the real tax advantage. This does not dispense with the statutory tests, safeguards and prescribed procedure for applying GAAR.

Corresponding Section 182 of the Income-tax Act, 2025

Section 182 of the Income-tax Act, 2025 is titled "Treatment of connected person and accommodating party". It carries forward the same four mechanisms, now labelled clauses (a) to (d): combining connected persons, disregarding an accommodating party, combining an accommodating party with another party, and looking through corporate structures.

Definitions for the 2025 Act appear in Section 184 of the updated Income-tax Act, 2025. The GAAR provisions must be read as a whole, including the test for an impermissible avoidance arrangement and applicable procedures.

Illustrative examples

Example 1: Interposed entity

Company A routes a transaction through Company B, which has no meaningful commercial role other than obtaining a tax advantage. Depending on the facts and other GAAR requirements, Company B may be disregarded or the structure looked through when assessing the tax benefit.

Example 2: Connected-party arrangement

Two connected companies undertake offsetting transactions that create a tax deduction without a corresponding commercial change. For the purpose of testing the tax benefit, the parties may be considered together. Their connection alone, however, is not sufficient to establish an impermissible avoidance arrangement.

Section 95: applicability of the General Anti-Avoidance Rule.
Section 96: meaning of an impermissible avoidance arrangement, including the main-purpose tax-benefit test and specified tainted elements.
Section 97: circumstances in which an arrangement lacks commercial substance and treatment of accommodating parties.
Section 98: tax consequences after an arrangement is declared impermissible.
Section 99: treatment of connected persons, accommodating parties and corporate structures in determining whether a tax benefit exists.
Sections 100 to 102: application, guidelines and definitions under the 1961 Act.

Practical documentation and compliance

Taxpayers considering arrangements involving connected parties or intermediaries should retain contemporaneous evidence of commercial objectives, decision-making, pricing, economic substance, risk allocation and actual cash flows. A GAAR review should also consider applicable exclusions, thresholds, treaty provisions and the prescribed procedural safeguards; these are not overridden merely because Section 99 permits a look-through analysis.

Official legislation and references

This article provides general legal information. The treatment of a particular arrangement depends on its facts, relevant tax period, statutory exclusions and the prescribed GAAR process.