Taxpayers involved in cross-border transactions or certain high-value transactions may face uncertainty over how their tax position will be treated. To provide greater clarity in such cases, the Income-tax Act, 2025 provides a mechanism for seeking an advance ruling from the Board for Advance Rulings.
The provisions relating to advance ruling are contained in Sections 380 to 389 of the Income-tax Act, 2025. The mechanism is particularly relevant for non-residents, residents undertaking transactions with non-residents and certain residents involved in transactions of significant value.
What is an Advance Ruling?
Under Section 380(a), an advance ruling is a determination by the Board for Advance Rulings on specified tax questions arising from a transaction undertaken or proposed to be undertaken.
For a non-resident, the ruling may relate to a transaction undertaken or proposed to be undertaken by the applicant. A resident who enters into or proposes to enter into a transaction with a non-resident may also seek a determination regarding the tax liability of the non-resident arising from that transaction.
The framework also covers a resident applicant whose transaction or transactions have an aggregate value of Rs 100 crore or more. In such cases, the determination may include questions of law or fact specified in the application.
Advance ruling can also cover the determination of whether a proposed arrangement constitutes an impermissible avoidance arrangement under Chapter XI.
Who Can Apply for Advance Ruling?
Section 380(b) specifies the categories of applicants who can approach the Board for Advance Rulings. These include:
- A non-resident who has undertaken or proposes to undertake a transaction in India.
- A resident who has undertaken or proposes to undertake a transaction with a non-resident.
- A resident undertaking one or more transactions having an aggregate value of Rs 100 crore or more.
- A resident belonging to a notified class or category of persons, presently including public sector companies.
- Any resident or non-resident seeking a determination on whether a proposed arrangement is an impermissible avoidance arrangement under Chapter XI.
When Will an Application Not Be Allowed?
The Board for Advance Rulings does not admit an application in certain circumstances.
An application cannot generally be allowed where the question raised is already pending before an income-tax authority, appellate tribunal or court. An exception applies to a resident applicant falling within a notified class or category.
An application is also not allowed when it involves determining the fair market value of any property.
Similarly, an application relating to a transaction that is prima facie designed for the avoidance of income tax may not be admitted, subject to the specified exceptions.
Advance Ruling Application to Be Filed in Form 120
Taxpayers seeking an advance ruling are required to make the application in Form No. 120.
The application must contain details such as the questions on which the ruling is sought, relevant provisions of the Act, facts relating to the transaction and the applicant's interpretation of the applicable law or facts.
For non-resident applicants and cases involving non-resident parties, the application also requires relevant details concerning the parties, group structure, PAN, taxpayer identification number and parent or holding entities, wherever applicable.
What is the Fee for Advance Ruling?
The fee depends on the value of the transaction or transactions involved.
| Category / Transaction Value | Fee |
|---|---|
| Transaction value up to Rs 100 crore | Rs 2 lakh |
| Above Rs 100 crore and up to Rs 300 crore | Rs 5 lakh |
| Above Rs 300 crore | Rs 10 lakh |
| Any other applicant | Rs 10,000 |
The prescribed fee is required to be paid along with the application.
How is the Application Submitted?
Form No. 120 must be completed with accurate details relating to the applicant, transaction or arrangement, questions raised, relevant facts and the applicant's interpretation.
Supporting documents, including relevant agreements and proof of payment of the prescribed fee, are required to be enclosed.
The application, annexures and accompanying statements must be signed or digitally signed by the authorised person, as applicable, and furnished through the registered email address. The document states that Form No. 120 is to be submitted exclusively through the Income-tax e-Filing Portal.
Who Can Sign the Application?
Where the applicant is required to file an income-tax return, the application is to be signed by the person authorised to verify the return under Section 265. Depending on the applicable requirement, it may be submitted using a digital signature or electronic verification code.
If the applicant is not required to file an income-tax return, the application may be signed by a duly authorised person holding a valid power of attorney and may be furnished using a digital signature or EVC, as specified by the Board.
Can an Advance Ruling Application Be Withdrawn?
Yes. An application for advance ruling can be withdrawn within 30 days from the date of application.
What Happens After Filing the Application?
Once an application is received, the Board for Advance Rulings sends a copy to the Principal Commissioner or Commissioner and may call for relevant records.
After examining the application and records, the Board may either allow or reject the application. However, an application cannot be rejected without giving the applicant an opportunity of being heard. Where an application is rejected, reasons for the rejection are required to be stated in the order.
If the application is admitted, the Board is required to pronounce its advance ruling in writing on the question specified in the application within six months of receiving the application.
The applicant may also request an opportunity of being heard before the ruling is pronounced, either personally or through an authorised representative.
Is an Advance Ruling Binding?
An advance ruling is binding on the applicant who sought it and in relation to the transaction for which the ruling was obtained.
It is also binding on the Principal Commissioner or Commissioner and the income-tax authorities subordinate to that authority in respect of the applicant and the relevant transaction.
However, the ruling remains binding subject to there being no change in the law or facts on the basis of which the ruling was pronounced.
When Can an Advance Ruling Become Void?
An advance ruling can be declared void ab initio if the Board finds that it was obtained by the applicant through fraud or misrepresentation of facts.
In such a situation, the relevant provisions of the Act will apply as if the advance ruling had never been made, subject to the statutory exclusion of the specified period.
Powers of the Board for Advance Rulings
The Board has powers similar to those of a civil court for specified purposes. These include powers relating to discovery and inspection, enforcing attendance, examining persons on oath, compelling production of books and documents and issuing commissions.
The Board also has the power to regulate its own proceedings in matters arising under the Income-tax Act.
Appeal Against Advance Ruling
An applicant as well as the Assessing Officer, on the directions of the Principal Commissioner or Commissioner, can file an appeal before the High Court against an order or ruling of the Board for Advance Rulings.
The appeal is generally required to be filed within 60 days from the date of communication of the ruling or order. Where sufficient cause prevented the appellant from filing within the prescribed period, the High Court may allow a further period of up to 30 days.
Why Advance Ruling Matters for Taxpayers
Advance ruling can provide an important avenue for obtaining clarity on tax questions before or in connection with specified transactions. For businesses dealing with non-residents, large-value transactions and complex tax arrangements, understanding the eligibility conditions and application procedure can help determine whether this mechanism is available.
For tax professionals, the provisions under Sections 380 to 389 are particularly relevant when advising clients on cross-border transactions, high-value transactions and potential tax-avoidance issues.
The Income Tax Department document also includes practical questions covering key aspects such as eligibility, transaction thresholds, application form, fees and withdrawal of applications, making these provisions relevant for both taxpayers and tax professionals preparing for the implementation of the Income-tax Act, 2025.
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