Rules 115 and 116 of the Draft Income-tax Rules, 2026 establish the mechanism for revision and cancellation of agreements entered into under the Act. Under Rule 115, the Board may revise an agreement if there is a change in critical assumptions, failure to meet agreed conditions, a change in law affecting matters covered by the agreement (without rendering it non-binding), or upon request from a foreign competent authority in bilateral or multilateral agreements. Revision may be initiated suo motu or upon request by the assessee or specified tax authorities. Except where the assessee seeks revision, no revision can occur without granting the assessee an opportunity of being heard and obtaining their agreement; failing agreement, cancellation may follow under Rule 116. If the Board rejects a revision request by the assessee, it must record written reasons. Revised agreements must specify the applicability period.
Rule 116 mandates cancellation for non-compliance revealed in audit, failure to file annual compliance reports, material errors in such reports, or cancellation under related provisions. Cancellation requires a hearing opportunity, written and reasoned orders, communication to foreign authorities in bilateral or multilateral cases, specification of effective date, and intimation to jurisdictional tax authorities. Fraud or misrepresentation may render an agreement void ab initio.
Extract of Rule No. 115, 116 of Draft Income-tax Rules, 2026
Rule 115
Revision of an agreement.
(1) An agreement, subsequent to it having been entered into, may be revised by the Board, if, —
(a) there is a change in critical assumptions or failure to meet a condition subject to which the agreement has been entered into;
(b) there is a change in law that modifies any matter covered by the agreement but is not of the nature which renders the agreement to be non-binding; or
(c) there is a request from competent authority of the other country requesting revision of agreement, in case of bilateral or multilateral agreement.
(2) An agreement may be revised by the Board either suo motu or on request of the assessee or the competent authority of India or the Principal Chief Commissioner of Income-tax (International Taxation).
(3) Except when the agreement is proposed to be revised on the request of the assessee, the agreement shall not be revised unless an opportunity of being heard has been provided to the assessee and the assessee is in agreement with the proposed revision.
(4) In case the assessee is not in agreement with the proposed revision the agreement may be cancelled in accordance with rule 116.
(5) In case the Board is not in agreement with the request of the assessee for revision of the agreement, the Board shall reject the request in writing giving reason for such rejection.
(6) For the purpose of arriving at the agreement for the proposed revision, the procedure provided in rule 109 may be followed so far as they apply.
(7) The revised agreement shall include the date till which the original agreement is to apply and the date from which the revised agreement is to apply.
Rule 116
Cancellation of an agreement.
(1) An agreement shall be cancelled by the Board for any of the following reasons:
(i) the compliance audit referred to in rule 114 has resulted in the finding of failure on the part of the assessee to comply with the terms of the agreement;
(ii) the assessee has failed to file the annual compliance report in time;
(iii) the annual compliance report furnished by the assessee contains material errors; or
(iv) the agreement is to be cancelled under rule 115(4) or rule 117(7).
(2) The Board shall give an opportunity of being heard to the assessee, before proceeding to cancel an application.
(3) The competent authority of India shall communicate with the competent authority of the other country or countries and provide reason for the proposed cancellation of the agreement in case of bilateral or multilateral agreement.
(4) The order of cancellation of the agreement shall be in writing and shall provide reasons for cancellation and for non-acceptance of assessee’s submission, if any.
(5) The order of cancellation shall also specify the effective date of cancellation of the agreement, where applicable.
(6) The order under section 168(7) of the Act, declaring the agreement as void ab initio, on account of fraud or misrepresentation of facts, shall be in writing and shall provide reason for such declaration and for non-acceptance of assessee’s submission, if any.
(7) The order of cancellation shall be intimated to the Assessing Officer and the Transfer Pricing Officer, having jurisdiction over the assessee.
