The advance ruling mechanism under Chapter XIX-B (Sections 245N to 245V) of the Income Tax Act 1961 allows specified applicants to obtain a binding ruling on a question of law or fact in relation to a transaction undertaken or proposed to be undertaken. The Authority for Advance Rulings (AAR) was reconstituted as the Board for Advance Rulings in 2021.
The advance ruling mechanism is available to: non-residents (in relation to a transaction undertaken or proposed to be undertaken with a resident), residents (in relation to a transaction undertaken or proposed to be undertaken with a non-resident, with the value exceeding Rs 100 crore), and notified categories of residents. The application is filed with the Board for Advance Rulings (which replaced the AAR following the Finance Act 2021). The Board is required to pronounce its ruling within six months of receiving the application. The ruling is binding on the applicant, in respect of the transaction for which it was sought, and on the Principal Commissioner/Commissioner and the income tax authorities subordinate to them.
AMLEGALS advises non-resident companies, residents entering into high-value cross-border transactions and specified domestic applicants on the strategy, preparation and filing of advance ruling applications, representation before the Board, and the implications and challenge of rulings.
Evaluating whether an advance ruling is the appropriate mechanism and structuring the question(s) for maximum clarity and binding effect.
Drafting the advance ruling application with a comprehensive statement of facts and the question(s) of law or fact.
Representing the applicant at hearings before the Board for Advance Rulings.
Analysing the ruling and advising on its binding effect, scope and implications for the transaction.
Advising on the challenge of an advance ruling through writ proceedings (the ruling is not directly appealable but can be challenged under Article 226).
Advising on tax compliance in accordance with the advance ruling.
An advance ruling is a binding determination by the Board for Advance Rulings on a question of law or fact in relation to a transaction that has been undertaken or is proposed to be undertaken. It provides tax certainty to the applicant before or at the time of the transaction. The ruling is binding on the applicant and the income tax authorities for the specified transaction.
Under Chapter XIX-B, the following can apply: (a) a non-resident, in relation to a transaction undertaken or proposed to be undertaken with a resident; (b) a resident, in relation to a transaction with a non-resident, if the value exceeds Rs 100 crore; (c) a resident falling in a notified class or category. After the 2021 reconstitution, the Board for Advance Rulings handles these applications.
Yes. Under Section 245S, the advance ruling is binding on the applicant (in respect of the transaction) and on the Principal Commissioner/Commissioner and the authorities subordinate to them. However, it can be declared void if obtained by fraud or misrepresentation of facts.
There is no statutory appeal from an advance ruling. However, the Supreme Court and High Courts have held that advance rulings can be challenged through writ proceedings under Article 226 of the Constitution on limited grounds — error apparent on the face of the record, violation of principles of natural justice, or jurisdictional error.
The Board for Advance Rulings is required to pronounce its ruling within six months of receipt of the application. In practice, the timeline may extend depending on the complexity of the question and the Board's caseload. The applicant can request adjournments, which may affect the timeline.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing.
Share the details for a confidential assessment.