Income Tax 2025

Appearance

2.—Advance rulings

Section 380: Interpretation. ​

In this Chapter,—

380 (a) Advance ruling. ​

(a) “advance ruling” means—

  • (i) a determination by the Board for Advance Rulings in relation to the tax liability arising out of a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or
  • (ii) a determination by the Board for Advance Rulings in relation to the tax liability of a non-resident arising out of a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident; or
  • (iii) a determination by the Board for Advance Rulings in relation to the tax liability of a resident applicant, arising out of a transaction which has been undertaken or is proposed to be undertaken by such applicant; and such determination shall include the determination of any question of law or of fact specified in the application;
  • (iv) a determination or decision by the Board for Advance Rulings in respect of an issue relating to computation of total income which is pending before any income-tax authority or the Appellate Tribunal and such determination or decision shall include the determination or decision of any question of law or of fact relating to such computation of total income specified in the application;
  • (v) a determination or decision by the Board for Advance Rulings whether an arrangement, which is proposed to be undertaken by any person being a resident or a non-resident, is an impermissible avoidance arrangement as referred to in Chapter XI or not;

380 (b) Applicant. ​

(b) “applicant” means any person who—

  • (i) is a non-resident referred to in clause (a)(i); or
  • (ii) is a resident referred to in clause (a)(ii); or
  • (iii) is a resident referred to in clause (a)(iii) falling within any such class or category of persons as the Central Government may, by notification, specify; or
  • (iv) is a resident falling within any such class or category of persons as the Central Government may, by notification, specify in this behalf; or
  • (v) is referred to in clause (a)(v), and makes an application under section 383(1);

380 (c) Application ​

(c) “application” means an application made to the Board for Advance Rulings under section 383(1);

380 (d) Board for Advance Rulings. ​

(d) “Board for Advance Rulings” means the Board for Advance Rulings constituted by the Central Government under section 381;

380 (e) Member. ​

(e) “Member” means a Member of the Board for Advance Rulings.

Explanation

Section Summary: ​

Section 380 of the Income Tax Act provides definitions and interpretations related to advance rulings. An advance ruling is a determination made by the Board for Advance Rulings (BAR) regarding the tax liability arising from a transaction undertaken or proposed by an applicant. This section clarifies who can apply for an advance ruling, what constitutes an application, and the scope of the BAR's authority.

Key Changes: ​

  1. Expanded Scope of Advance Rulings: The new law broadens the scope of advance rulings to include:

    • Tax liability determinations for both non-residents and residents.
    • Issues related to computation of total income pending before tax authorities or tribunals.
    • Determinations on whether a proposed arrangement is an impermissible avoidance arrangement under Chapter XI (General Anti-Avoidance Rules or GAAR).

  2. Inclusion of Residents: Previously, advance rulings were primarily available to non-residents. The new law extends this facility to residents in specific cases, as notified by the Central Government.

  3. Clarification on Applicants: The definition of "applicant" now explicitly includes:

    • Non-residents involved in transactions.
    • Residents involved in transactions with non-residents.
    • Residents in specific categories as notified by the government.

Practical Implications: ​

  1. For Non-Residents: Non-residents can seek clarity on their tax liabilities before undertaking transactions in India, reducing uncertainty and potential disputes.
  2. For Residents: Residents, especially those in notified categories, can now seek advance rulings on their tax liabilities, including issues related to GAAR.
  3. For Businesses: Companies and individuals can plan transactions with greater certainty, as advance rulings provide binding decisions on tax implications.
  4. For Tax Authorities: The BAR's role is expanded to address complex issues like GAAR and income computation, reducing the burden on other tax authorities.

Critical Concepts: ​

  1. Advance Ruling: A binding decision by the BAR on the tax implications of a transaction or arrangement.
  2. Impermissible Avoidance Arrangement (IAA): A transaction or arrangement designed to avoid tax, which may be scrutinized under GAAR.
  3. Board for Advance Rulings (BAR): A quasi-judicial body constituted by the Central Government to provide advance rulings.
  4. Applicant: A person (resident or non-resident) who applies for an advance ruling under Section 383(1).

Compliance Steps: ​

  1. Identify Eligibility: Determine if you fall under the categories of applicants eligible for an advance ruling (e.g., non-resident, resident in notified categories).
  2. Prepare Application: Submit an application to the BAR under Section 383(1), specifying the transaction or issue for which the ruling is sought.
  3. Provide Details: Include all relevant facts, documents, and questions of law or fact related to the transaction or arrangement.
  4. Await Ruling: The BAR will issue a binding ruling, which must be adhered to by the applicant and tax authorities.

Examples: ​

  1. Non-Resident Example: A foreign company planning to set up a subsidiary in India can seek an advance ruling on the tax implications of the transaction, such as withholding tax on payments to the parent company.
  2. Resident Example: An Indian company entering into a complex financial arrangement with a non-resident can seek a ruling on whether the arrangement falls under GAAR.
  3. Income Computation Example: A taxpayer with a pending dispute on the computation of total income can seek a ruling from the BAR to resolve the issue before proceeding with the transaction.

This section enhances transparency and certainty in tax planning, benefiting both taxpayers and tax authorities.