Advance Ruling under Income-tax

Introduction

Advance Ruling is an authoritative decision by the Board for Advance Rulings about the tax consequences of a transaction or proposed transaction. The advance rulings are intended to provide certainty and reduce the risk of future disputes.

1. About

1.1. What is Advance Ruling?

An Advance Ruling is a judgment issued by the Board for Advance Rulings on various matters, such as tax liability determination, computation of total income, clarifications on legal or factual matters, and decisions on whether a specific arrangement falls within an impermissible avoidance arrangement. Its primary aim is to minimise the likelihood of future disputes.     

1.2. What is the Board for Advance Rulings?

The power to give advance rulings has been entrusted to the Board for Advance Rulings. The CBDT has set up three offices of the Board for Advance Rulings: 2 offices in Delhi and 1 in Mumbai

It is to be noted that if the Members of a Board for Advance Rulings differ in opinion on any point or points, the Board for Advance Rulings shall refer such point or points to the Principal Chief Commissioner of Income-tax (International Taxation), who shall nominate one Member from any other Board for Advance Rulings and such point or points shall be decided according to the opinion of the majority of the Members

1.3. Powers of the Board for Advance Rulings

The Board for Advance Rulings shall have all the powers of a civil court under the Code of Civil Procedure, 1908 as referred to in Section 246 of the Income-tax Act.

The Board for Advance Rulings shall be deemed to be a civil court for the purpose of Section 215, but not for the purpose of Chapter XXVIII of the Bharatiya Nagarik Suraksha Sanhita, 20223 and every proceeding before the Board of Advance Rulings shall be deemed to be a judicial proceeding within the meaning of Sections 229  and 267, and for the purpose of Section 233, of the Bharatiya Nyaya Sanhita, 2023.

If any difficulty arises in giving effect to any order of the Board for Advance Rulings, it may, on its own motion or on an application made by the applicant or the Principal Commissioner or the Commissioner of Income-tax, remove the difficulty in so far as it is not inconsistent with the provisions of the Income-tax Act 2025.

1.4. Who can approach for the Advance Ruling and for which matters?

The following persons for the following matters can obtain the advance ruling:

Note:

(a) The question must relate to the applicant itself and not to any other person. Thus, where the question sought to be raised relates not to the applicant, the application will not be admitted.

(b) A non-resident can seek an advance ruling on questions regarding its tax liability on the income sourced in India

(c) No income-tax authority or the Appellate Tribunal shall proceed to decide any issue in respect to which an application has been made by a resident applicant.

1.5. Questions on which advance ruling cannot be sought?

An advance ruling can be sought for any questions of law or fact or a combination of both pertaining to the income-tax liability of the applicant arising out of the transaction undertaken or proposed to be undertaken by him. However, there are certain exceptions where an advance ruling cannot be sought

1.5-1. Question pending before other authorities

If the question is already under consideration in the applicant’s case before an Income Tax authority, the Appellate Tribunal, or a Court, an advance ruling cannot be requested. However, this restriction doesn’t apply to public sector companies. Public Sector Companies can apply for an advance ruling even if the matter is pending before the tax authority or Appellate Tribunal.

1.5-2. Determination of market value of any property

Advance ruling cannot be sought for the determination of the fair market value of any property, whether movable or immovable.

1.5-3. Transactions designed for the avoidance of tax

Applications for advance rulings won’t be permitted if they pertain to transactions primarily designed for tax avoidance. However, cases regarding whether a transaction constitutes an impermissible avoidance arrangement under the General Anti-Avoidance Rules (GAAR) can be brought for an advance ruling by both resident and non-resident applicants.

It is to be noted that no application shall be rejected unless an opportunity of being heard has been given to the applicant, and also where the application is rejected, the reason for such rejection shall be given in the order.

1.6. How to approach the Board for Advance Rulings?

An applicant desirous of obtaining an advance ruling should apply to the Board for Advance Rulings in the prescribed form stating the question on which the ruling is sought.

1.6-1. Forms for application

The application for the advance ruling shall be filed in Form 120.

1.6-2. Information required to furnish in the application

The main information that the applicant is required to furnish in the application is as follows:

(a) Question(s) relating to the transaction on which the advance ruling is required.

(b) Brief Summary of question(s) asked and relevant sections of the Act

(c) Statement of the relevant facts having a bearing on the question(s) and statement containing the applicant‘s interpretation of law or facts, as the case may be, in respect of the question(s).

(d) Total No. of Non-Resident Parties involved, including the Applicant

(e) Group Structure Details of Non-Resident Applicant and Non-Resident parties involved which includes name of Non-Resident applicant or party involved, PAN, Status, taxpayer Identification Number (TIN) etc.

(f) Name of Immediate and Ultimate Parent Company/Holding Entity.

(g) Details of same or similar issues, if any, decided by any Income Tax Authority or Tribunal or Court in the case of the applicant.

(h) Whether any proceedings pertaining to the applicant or any other entity of the applicant"s group are pending before the BAR on same or similar transaction(s).

1.6-3. Process for submission of application

(a) Form No. 120 shall be duly filled, ensuring that all sections are completed with accurate details of the applicant, particulars of the transaction or arrangement, the questions on which the ruling is sought, along with the relevant facts and interpretations.

(b) All documents relevant to the statement of facts and interpretation of law/facts shall be enclosed, including supporting documents, copies of agreements, and proof of payment of the prescribed fee.

(c) The application, annexures, and all accompanying statements shall be duly signed or digitally signed by the authorized person (as per the category of the applicant) and furnished through the registered email address.

(d) Form No. 120 shall be submitted exclusively through the Income-tax e-Filing Portal.

1.6-4. Who shall sign and verify the form?

The application form (including the verification appended, annexures, statements, and accompanying documents) shall be furnished electronically and shall be signed or digitally signed in the following manner:

(a) If applicant is required to file ITR

The application shall be signed by the person authorized to verify the return under Section 265 and submitted electronically, either with a digital signature where required or through an electronic verification code (EVC) in other cases

(b) If applicant is not required to file ITR

The application may be signed by any person duly authorized by the applicant holding a valid power of attorney, and it may be furnished using either a digital signature or an electronic verification code (EVC), as specified by the Board.

1.6-5. Fees for advance ruling application

See also: How to pay fees for seeking an Advance Ruling?

Every application shall be accompanied by proof of payment of fees as specified in the following table:

An applicant may withdraw an application within 30 days from the date of application.

2. Faceless Scheme for Advance Ruling

2.1. Formation of Scheme

Section 384 lays down the procedure of the Board for Advance Rulings and it empowers the Central government to make a scheme to give advance rulings by the Board for Advance Rulings in a faceless manner.

2.2. Purpose of Scheme

Such a scheme is to be formed to impart greater efficiency, transparency, and accountability by:

(a) Eliminating the interface between the Board for Advance Rulings and the applicant in the course of proceedings to the extent technologically feasible;

(b) Optimising utilisation of the resources through economies of scale and functional specialisation.

2.3. e-advance rulings Scheme, 2022

The Central Government has notified

By virtue of Section 536(2)(j) of the Income-tax Act, 2025, the same scheme shall be applicable for the purposes of Sections 380 to 389 of the Act.

2.4. Issue of directions

The Central government is empowered to direct that any provision of the Act shall not apply or shall apply with the exceptions, modifications, and adaptations specified in the notification. However, the Central Government may amend such directions issued under this section by notification in the Official Gazette.

3. Advance ruling order

Main article: e-Advance Rulings Scheme

3.1. Passing of order by Board for Advance Rulings

Where an application for advance ruling is allowed, the Board for Advance Rulings shall, after examining such further material as may be placed before it by the applicant or obtained by the board, pronounce its advance ruling on the question specified in the application. The Board for Advance Rulings shall pronounce its advance ruling in writing within 6 months of the receipt of the application.

3.2. Advance ruling to be void in certain circumstances

Where the Board for Advance Rulings finds that an advance ruling pronounced under section 384(6) has been obtained by the applicant by fraud or misrepresentation, it may, by order, declare such ruling to be void ab initio.

Hence, all the provisions of the Income-tax Act, 2025 shall apply (after excluding the period beginning with the date of such advance ruling and ending with the date of order declare such ruling to be void) to the applicant as if such advance ruling had never been made.

A copy of such order shall be sent to the applicant and the Principal Commissioner or Commissioner.

3.3. Appeal against advance ruling

An appeal against an order for advance ruling passed by the Board for Advance Rulings under this scheme shall lie before the High Court. The appeal may be filed by the applicant or by the Assessing Officer having jurisdiction over the applicant.

The appeal can be filed within 60 days from the date of the communication of that order. The High Court may grant a further 30 days for filing such an appeal if it is satisfied that the appellant was prevented by sufficient cause from presenting the appeal.

References

Notification No. 96/2021, dated 01-09-2021 read with Office Order F. No. 189/3/2022-ITA-I, dated 06-02-2023.

Notification No. 38, dated 12-06-2023

Notification No. 73, dated 28-11-2014

Notification No. 11456, dated 3-8-2000

CBDT’s Handbook on Advance Rulings.

CBDT’s Handbook on Advance Rulings.

Notification No. 07/2022, dated 18-01-2022

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.