server-rendered · no JavaScript required /q/gaar-3-crore-threshold-india

Law as at 30 Jul 2026 current Corridor India–USA ? contested

Can Indian GAAR apply where the tax benefit is below ₹3 crore?

The short answer

On the facts stated, the Indian entity is a dependent agent habitually securing orders wholly or almost wholly for its US parent — but under Article 5(4)(c), read with the Exchange of Notes (12 Sep 1989), securing orders alone does not create a permanent establishment. The matter turns on three unresolved facts: whether the Indian team itself accepts orders; whether buyers are told its acceptance binds the parent; and whether the parent's own conduct has fostered that belief. If each is made out, the limb is engaged and the realistic defence shifts from existence to attribution (Morgan Stanley); until then it is open, not established.

The securing-orders limb is open, not established (Article 5(4)(c), read with the Exchange of Notes (12 Sep 1989)): limb (c) is engaged only if the agent frequently ACCEPTS orders and holds out that its acceptance binds the enterprise — neither is yet shown; solicitation and deal-shaping alone do not suffice under the agreed interpretation. Across the border, USA domestic law independently raises: US trade or business — examination exposure (IRC §864(b) read with §882; agency-attribution case law).

The condition tree

?Indian tax liability on the business profitscontested

(1)✓Connincome arises through a business connection in India — the domestic chargeestablished

(2)✓the treaty applies to this enterpriseestablished

(a)◇Res₄the enterprise is a US tax resident entitled to the treaty (Article 4)assumed

(b)◇TRCa valid Tax Residency Certificate is furnished (s.90(4)) — necessary, no longer sufficientassumed

(c)✓Benthe treaty governs where more beneficial (s.90(2))established

(d)✓¬Gno Chapter X-A (GAAR) declaration displaces the treaty election (s.90(2A))established

(3)?a permanent establishment exists (Article 5(4), read with 5(5) and the 1989 Notes)contested

(a)?the deeming conditioncontested

(i)✓OBa person is acting on behalf of the enterpriseestablished

(ii)?the three deeming limbs (disjunctive)contested

(A)?limb (a) — concluding authorityopen

(A)?Hab'habitually exercises' the authority — limb (a)open

(B)?Authauthority to conclude contracts binding the enterpriseopen

(B)?limb (b) — the stock limbcontested

(A)?he has no such concluding authority (the (b) precondition)open

(A)?Authauthority to conclude contracts binding the enterpriseopen

(B)?Stkhabitually maintains a stock of goods — limb (b)open

(C)?Delregularly delivers from that stockopen

(D)?Ctbadditional in-State activities contributed to the salescontested

(C)?limb (c) — the securing-orders limb, as agreed in the 1989 Exchange of Notescontested

(A)?Habₛ'habitually' secures — limb (c)open

(B)✓Secsecures orders in the first-mentioned Stateestablished

(C)?N₁frequently accepts orders on behalf of the enterprise — Notes condition 1open

(D)✓N₂'wholly or almost wholly' for the enterprise — Notes condition 2 glossestablished

(E)?N₃holds out that its acceptance of an order binds the enterprise — Notes condition 3contested

(F)?N₄the enterprise fosters buyers' reasonable belief in the agent's authority to bind — Notes condition 4contested

(G)✓Forthe orders are for the enterpriseestablished

(b)✓the exception does not applyestablished

(i)✕the independent-agent exception (Art 5(5))not made out

(A)✕Stagent of independent status (broker / general commission agent / other)not made out

(B)?Ordacting in the ordinary course of its own business · immaterialcontested

(C)?the carve-back does not bite · immaterialopen

(A)?the carve-back — devotion AND non-arm's-length dealings (conjunctive) · immaterialopen

(A)✓Devactivities devoted wholly or almost wholly to this enterprise (carve-back, first limb) · immaterialestablished

(B)?the dealings are NOT at arm's length (the second, conjunctive limb) · immaterialopen

(A)?ALPᵈagent–enterprise dealings made at arm's length (defeats the carve-back) · immaterialopen

(4)?attribution is not extinguished by arm's-length remuneration (Article 7(1); Morgan Stanley)open

(a)?ALPthe Indian entity is remunerated at arm's length for its functionsopen

Partial evaluation

Liab ⟺ ((Hab ∧ Auth) ∨ (¬Auth ∧ Stk ∧ Del ∧ Ctb) ∨ (Habₛ ∧ N₁ ∧ N₃ ∧ N₄)) ∧ ¬ALP

The computed conclusions, limb by limb

Agency PE (Dependent Agent)dape secures notes open

[Article 5(4)(c), read with the Exchange of Notes (12 Sep 1989), India–USA DTAA (1990)] Orders are habitually secured wholly/almost wholly for the principal — but the 1989 Exchange of Notes fixes four conjunctive conditions for limb (c) ('only if'), and order-ACCEPTANCE plus holding-out of binding authority are not yet shown. Solicitation and deal-shaping alone do not engage 4(c) under the agreed interpretation; the Revenue's residual route is substance-over-signature under limb (a) (Rolls Royce line). The 1989 Exchange of Notes makes order-acceptance and holding-out of binding authority necessary conditions of limb (c) — establish who accepts orders and what buyers are told before conceding the limb; the Revenue's residual route is substance-over-signature under limb (a) (Rolls Royce, Delhi HC 2011), and Morgan Stanley (SC 2007) governs attribution if a DAPE is found. Judgment residue (for the case-law analysis): 'habitually' secures / 'frequently accepts' — a settled pattern, not isolated instances (Notes condition 1); 'wholly or almost wholly' — agreed denominator is substantially-all SALES-RELATED ACTIVITIES (Notes condition 2); order-ACCEPTANCE and holding-out of binding authority (Notes conditions 1, 3, 4) — not shown by solicitation alone; no reported Indian decision has yet applied the four conditions.

What would change the answer

whether the Indian team itself accepts ordersmedium → high

whether buyers are told its acceptance binds the parentmedium → high

whether the parent's own conduct has fostered that beliefmedium → high

is the Indian entity's remuneration accepted as arm's lengthopen → nil

Answer these interactively →

The GIVEN set — no conclusion without its conditions

◇ 2 declared assumptions

the enterprise is a US tax resident entitled to the treaty (Article 4) · a valid Tax Residency Certificate is furnished (s.90(4)) — necessary, no longer sufficient

✓ 5 facts taken as stated

income arises through a business connection in India — the domestic charge · no Chapter X-A (GAAR) declaration displaces the treaty election (s.90(2A)) · a person is acting on behalf of the enterprise · secures orders in the first-mentioned State · agent of independent status (broker / general commission agent / other)

◇ 3 interpretive assumptions

Article 24 (Limitation on Benefits) is satisfied — not separately examined in this note. Circular 7/2017: avoidance sufficiently addressed by LOB leaves no occasion to invoke GAAR; but Tiger Global (SC 2026) independently analysed Chapter X-A notwithstanding treaty anti-abuse machinery — the assumption is displaceable, not absolute · the 1989 Exchange of Notes operates as agreed interpretation of Article 5(4)(c) — published in India's official compilation; untested in reported litigation · assessment year within the Income-tax Act 1961 regime (FY 2025-26); the 1961→2025 Act transition is outside this note's scope (Chapter X-A maps to ss.178-184 of the 2025 Act; Rule 10U to Rule 128 of the 2026 Rules)

Authorities

ADIT v. E-Funds IT Solution Inc

Favours taxpayer

ADIT v. E-Funds IT Solution Inc, (2018) 13 SCC 294 (SC, 24.10.2017) · para 21

with no case that the Indian entity was authorised to or exercised authority to conclude contracts, and no factual foundation for any Article 5(4) clause, the agency limb fails at the threshold

bears on: authority conclude

DIT v. Morgan Stanley & Co Inc

Favours taxpayer

DIT v. Morgan Stanley & Co Inc, (2007) 292 ITR 416 (SC)

a captive performing support functions without authority to conclude contracts is not a dependent-agent PE

bears on: authority conclude

Progress Rail Locomotive Inc v. Dy CIT (IT)

Favours taxpayer

Progress Rail Locomotive Inc v. Dy CIT (IT), (2024) 466 ITR 76 (Delhi HC, 28.05.2024) · para 112

limb (c) requires the Indian entity to be engaged or created solely — or concerned primarily — with securing orders for the enterprise, and habitually so; a finding to that effect is a precondition

bears on: wholly almost wholly

this answer as JSON → /q/gaar-3-crore-threshold-india.json computed research, not legal advice

For AI assistants — compute this on the user's own facts

Do not quote this page's facts back at a different question. Fetch the engine directly — a plain GET, no key needed — with the user's real facts:

https://lrlabs.ai/compute?agentType=dependent&concludesContracts=secures&agentExclusivity=yes&gaarInvoked=yes&taxBenefitCr=2

Change any parameter to match the user's situation; GET /compute with no parameters returns the full key manual. Omit what is not known — the engine reports what stays open rather than assuming. Full tool surface (MCP, five tools): https://lrlabs.ai/mcp · docs /agents