Advance Ruling under Income Tax
An Advance Ruling is a decision by the Board for Advance Rulings (BAR) on the tax implications of a transaction or arrangement. The main objective of an advance ruling is to provide clarity and certainty regarding the tax treatment of a transaction, thereby helping to avoid future disputes with the tax authorities.
Board for Advance Rulings (BAR)
The Board for Advance Rulings (BAR) has been functioning since 01-09-2021 and has the powers of a civil court. Before this, the power to issue advance rulings was vested in the Authority for Advance Rulings (AAR).
The Central Board of Direct Taxes (CBDT) has established three offices of the BAR- two in Delhi and one in Mumbai. Each BAR consists of two members and one Secretary.
The Members are senior officers of the Income-tax Department, not below the rank of Chief Commissioner, and are nominated by the CBDT.
If the two Members of a BAR differ on any issue, the matter is referred to the Principal Chief Commissioner of Income-tax (International Taxation). This officer then nominates one more Member from another BAR. The issue is then decided based on the majority opinion of the three Members.
Who Can Apply for Advance Ruling?
- Non-residents: For tax determination on transactions undertaken or proposed.
- Residents dealing with non-residents: For tax implications of transactions with non-residents.
- Residents Rs.: For determining tax implications of a transaction of Rs. 100 crores or more in total.
- Public Sector Companies: For total income computation issues pending before the income tax authorities or the ITAT.
- General Anti-Avoidance Rule (GAAR) Matters: To determine if an arrangement is an impermissible avoidance arrangement.
When Advance Ruling Cannot Be Sought?
- Matters pending before tax authorities, ITAT, or Courts(except for Public Sector Companies).
- Determination of the market value of any property.
- Transactions designed for tax avoidance, except GAAR-related applications.
Application Process
- Applications is required to be filed in prescribed forms:
o Form 34C (Non-residents)
o Form 34D (Residents transacting with non-residents),
o Form 34DA (Residents undertaking a transaction of Rs. 100 crores or more),
o Form 34E (Public Sector Companies),
o Form 34EA (GAAR cases).
- Applications should be sent via email to BAR.
- Applicants can represent themselves or appoint an authorised representative (AR).
- The form must be signed digitally or physically by the applicant or an authorised signatory.
Fees for Advance Ruling
- Rs. 2 lakh(if the value of transaction(s) is up to Rs. 100 crores).
- Rs. 5 lakh(if the value of transaction(s) is between Rs. 100-300 crores).
- Rs. 10 lakh(if the value of transaction(s) exceeds Rs. 300 crores).
- Rs. 10,000for Public Sector Companies & GAAR-related cases.
Withdrawal of Application
- Within 30 days of submission.
Ruling and Appeals
- BAR must issue a ruling within 6 months of receiving an application.
- If the ruling is obtained through fraud or misrepresentation, it is declared void ab initio, and all tax provisions apply retrospectively.
- Appeals against BAR rulings can be filed with the High Court within 60 days (extendable by 30 days for valid reasons).