An Advance Ruling is the determination of a question of law or fact related to the tax liability arising from transactions already undertaken or proposed to be undertaken by an applicant. The purpose of this mechanism is to provide clarity to taxpayers, giving them a clear-cut idea of their tax liability in advance for a given set of transactions. An advance ruling pronounced by the Authority is binding on the applicant, the Commissioner, the Commissioner of Income-tax (Appeals), and all income-tax authorities subordinate to the Commissioner, but only in respect of the specific transaction for which the ruling was sought.
The Authority for Advance Rulings (AAR) ceased operation effective September 1, 2021, as notified by the Central Government. Following this, the Finance Act, 2021, introduced Section 245-OB, empowering the Central Government to constitute one or more Board for Advance Rulings (BAR), each consisting of two officers not below the rank of Chief Commissioner. The CBDT notified the constitution of BARs in Delhi and Mumbai. All applications pending before the AAR on the notified date were transferred to the BAR along with all records. These transfers are now governed by the e-Advance Ruling Scheme, 2022, effective January 18, 2022.
The application process requires the applicant to submit the application in quadruplicate (four copies), stating the question on which the ruling is sought, along with the prescribed fee. The application fee must be paid via a demand draft in favour of the Authority for Advance Ruling (AAR/BAR). The fee structure is tiered based on the amount of the transaction(s): Rs. 2 Lacs for transactions up to Rs. 100 crore, Rs. 5 Lacs for transactions between Rs. 100 crore and Rs. 300 crore, Rs. 10 Lacs for transactions exceeding Rs. 300 crore, and Rs. 10,000 for other cases. Applicants can withdraw their application within 30 days of filing; withdrawal after this period requires the permission of the Authority. Any person can apply, including a non-resident, a resident setting up a joint venture with a non-resident, a resident, or a Public Sector Company (PSU). However, a resident can apply for an advance ruling regarding their tax liability only if the transaction(s) undertaken or proposed to be undertaken are equal to Rs. 100 crore or more.
Q.1 Are the Advance ruling, binding on taxpayers or tax authorities?
Ans An advance ruling pronounced by the Authority is binding on the follows :-
- The Applicant.
- The Commissioner.
- Commissioner of Income-tax (Appeals).
- Income-tax authorities who are subordinate to Commissioner
- In respect of transaction for which ruling had been sought
Q.2 Can I withdraw the Application for Advance Ruling, once I have filed it ?
Ans Yes, you may withdraw the application within 30 days from the date of such application. If you with drawl after such period, you can withdraw it only with the permission of the Authority.
Q.3 Can I pay the application fees in cash?
Ans No, the application fees payable should be in the form of a demand draft in favour of Authority for Advance Ruling.
Q.4 What fees is to be paid along with application for advance ruling?
Ans The fees to be paid along with application shall be as follows
| Category of case | Fee |
| Amount of transaction(s) does not exceed Rs. 100 crore. | Rs. 2 Lacs |
| Amount of transaction(s) exceeds Rs. 100 crore but does not exceed Rs.300 crore. | Rs. 5 Lacs |
| Amount of transaction(s) exceeds Rs. 300 crore. | Rs. 10 Lacs |
| Other Cases | Rs. 10,000 |
Q.5 What are requirements of an application for Advance Ruling?
Ans An applicant desirous of obtaining an advance ruling may make an application in such form and in such manner as may be prescribed :-
- Stating the question on which the advance ruling is sought.
- Application should be in quadruplicate (4 Copy).
- With prescribed fee.
Q.6 What is the meaning of advance ruling?
Ans Advance ruling means the determination of a question of law or fact specified in the application in relation to tax liability of an applicant arising out of transactions which have been undertaken or proposed to be undertaken.
The Finance Act, 2021 has provided that the Authority for Advance Rulings shall cease to operate with effect from such date, as may be notified by the Central Government in the Official Gazette. Later, the Central Government, vide Notification S.O. 3562(E), dated 01-9-2021, notified September 01, 2021 as the date effect from Authority for Advance Rulings shall cease to operate.
Q.7 When can a resident apply for an advance ruling?
Ans A resident can apply to AAR for advance ruling in relation to his tax liability only if transaction(s) undertaken or proposed to be undertaken is equal to 100 crores or more
Q.8 Who can apply for an advance ruling?
Ans “Applicant” can be any person who is :-
- A non-resident desirous of setting-up a joint venture in India in collaboration with a non-resident or a resident; or.
- A resident desirous of setting-up a joint venture in India in collaboration with a non-resident; or
- A resident;
- Public Sector Company. (PSU)
Q.9 What is the purpose of Advance rulings?
Ans The purpose of Advance rulings is to provide clarity on important issues to taxpayers, so that they have a clear-cut idea of their tax liability in advance for a given set of transactions.
Q.10 What does AAR stand for and what are its functions?
Ans AAR means Authority for Advance Rulings set-up by the Central Government for pronouncing advance rulings in respect applications filed before them.
Q.11 What is Board for Advance Rulings?
Ans The Finance Act, 2021 has inserted a new section section 245-OB to empower the Central Government to constitute one or more Board for Advance Rulings for giving advance rulings on and after the notified date. Every such Board shall consist of two members, each being an officer not below the rank of Chief Commissioner.
The CBDT vide, notification S.O. 3561(E), dated 01-09-2021 notified constitution of Boards for Advance Ruling in Delhi and Mumbai.
Q.12 How pending application before Authority for Advance Ruling shall be disposed off?
Ans The pending application with the Authority for Advance Ruling in respect of which order has not been passed before the notified date shall be transferred to the Board for Advance Rulings along with all records, documents or material, by whatever name called and shall be deemed to be the records before the Board for all purposes.
Q.13 What is e-Advance Ruling Scheme 2022
Ans E-advance rulings Scheme, 2022 has been notified by the CBDT vide Notification No. 07/2022, dated 18-01-2022. The Scheme is applicable with effect from 18-01-2022. The Scheme shall apply to the applications of advance rulings made to the Board for Advance Ruling or applications of advance rulings transferred to such Board.
(Republished with amendments)
