TaxTMI 
TaxTMI 
TaxTMI 
Changing Landscape of Advance Rulings in Indian Tax Law : Clause 380 of the Income Tax Bill, 2025 Vs. Section 245N of the 1961 Act
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....ns 245N to 245V) of the Income-tax Act, 1961, has undergone several amendments to expand its scope and accessibility. The present clause seeks to update and rationalize the definitions and scope of advance rulings, reflecting changes in international tax norms, domestic policy priorities, and administrative structures (notably, the replacement of the Authority for Advance Rulings with the Board for Advance Rulings). This commentary provides a detailed item-wise analysis of Clause 380, contrasts it with Section 245N of the Income-tax Act, 1961, and discusses the legal and practical implications of the changes. Objective and Purpose The legislative intent behind Clause 380 is to provide a clear interpretative framework for advance rulings,....
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....tainty to non-residents considering investment or business in India. * (ii) Determination for Transactions Involving Residents and Non-Residents: This extends the scope to cover rulings on the tax liability of a non-resident, arising from transactions with resident applicants. The focus here is on cross-border transactions where a resident seeks clarity on the non-resident's tax liability, which may have implications for withholding tax obligations, transfer pricing, and treaty interpretation. * (iii) Determination for Resident Applicants: This sub-clause enables resident applicants to seek advance rulings on their own tax liability in relation to transactions undertaken or proposed to be undertaken by them. However, eligibility....
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....ansactions with non-residents (clause (a)(ii)); * Residents seeking rulings on their own transactions, provided they belong to a class or category specified by the Central Government (clause (a)(iii)); * Residents in other specified classes/categories as notified by the government; * Persons seeking rulings on impermissible avoidance arrangements (clause (a)(v)). This structure ensures that access to advance rulings is both broad and subject to regulatory control, allowing the government to calibrate eligibility in response to evolving policy concerns. (c) Definition of "Application" An "application" refers to an application made to the BAR u/s 383(1). This ties the definition to the procedural framework laid out in the Bill, ensur....
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....resident transactions (subject to notification). Both also allow for rulings on pending issues before authorities or the Tribunal, as well as on impermissible avoidance arrangements. * Reference to Chapters: Section 245N refers to Chapter X-A for impermissible avoidance arrangements, whereas Clause 380 refers to Chapter XI. This appears to be a renumbering or restructuring in the new Bill, not a substantive change. (b) Eligibility and Access Both regimes restrict resident applicants to those belonging to specified classes or categories as notified by the government. This reflects a policy choice to prevent frivolous or excessive applications by residents, while ensuring that complex or high-value transactions can access the advance ruli....
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....cedure are entertained, maintaining administrative discipline. (f) Administrative Changes The most significant change is the replacement of the AAR with the BAR. This reflects a broader trend in tax administration towards board-based, quasi-judicial bodies, which are perceived as more efficient and less prone to delays than single-member or small collegial authorities. The definitions of "Member" and the absence of references to "Chairman" and "Vice-chairman" in the 2025 Bill suggest a streamlined board structure, possibly to address concerns about appointments, tenure, and accountability that plagued the AAR system. (g) Legislative Flexibility Both the 1961 Act and the 2025 Bill provide for the Central Government to notify classes or ....
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....llow for resident applicants, the actual scope is contingent on notifications by the Central Government. The criteria and rationale for such notifications are not specified, potentially leading to ambiguity or arbitrariness in practice. * Nature and Independence of the Board: The shift from an "Authority" to a "Board" raises questions about the independence, expertise, and procedural safeguards available to applicants. The effectiveness of the advance ruling regime depends on the perceived and actual independence of the adjudicating body. * Overlap with Pending Proceedings: The provision allowing for determination on issues pending before tax authorities or the Tribunal may give rise to questions about the interplay between the adva....