Rule 110 of the Draft Income-tax Rules, 2026 lays down the framework governing the terms and binding nature of an Advance Pricing Agreement (APA). The agreement may specify the international transactions covered, the agreed transfer pricing methodology, determination and manner of computing the arm’s length price, definitions of relevant terms, critical assumptions, rollback provisions, and additional agreed conditions. However, the binding effect of the agreement is conditional. If there is a change in any critical assumptions or failure to comply with stipulated conditions, the agreement shall not remain binding on either the Board or the assessee. The cessation of binding effect occurs only upon due notice by the concerned party. In cases of such changes or failures, the agreement may be revised or cancelled in accordance with prescribed rules. The assessee is required to promptly notify the Principal Chief Commissioner of Income-tax (International Taxation) of any change in critical assumptions or breach of conditions. Similarly, the Board must notify the assessee upon becoming aware of such changes. Thus, Rule 110 establishes a structured mechanism ensuring that APAs remain valid only so long as their foundational assumptions and agreed conditions continue to hold.
Extract of Rule No. 110 of Draft Income-tax Rules, 2026
Rule 110
Terms of the agreement.
(1) An agreement may among other things, include—
(i) the international transactions covered by the agreement;
(ii) the agreed transfer pricing methodology, if any;
(iii) determination of arm’s length price, if any;
(iv) the manner in which the arm’s length price is to be determined, if any;
(v) definition of any relevant term to be used in item (ii), (iii) or (iv); (vi) critical assumptions;
(vii) rollback provisions referred to in rule 111;
(viii) the conditions, if any, other than provided in the Act or these rules.
(2) The agreement shall not be binding on the Board or the assessee if there is a change in any of critical assumptions or failure to meet conditions subject to which the agreement has been entered into.
(3) The binding effect of agreement shall cease only if any party has given due notice to the concerned other party or parties.
(4) In case there is a change in any of the critical assumptions or failure to meet the conditions subject to which the agreement has been entered into, the agreement can be revised or cancelled, as the case may be.
(5) The assessee which has entered into an agreement shall give a notice in writing of such change in any of the critical assumptions or failure to meet conditions to the Principal Chief Commissioner of Income-tax (International Taxation) as soon as it is practicable to do so.
(6) The Board shall give a notice in writing of such change in critical assumptions or failure to meet conditions to the assessee, as soon as it comes to the knowledge of the Board.
(7) The revision or the cancellation of the agreement shall be in accordance with rules 115 and 116 respectively.
