Tax Planning In Respect of Non-Residents.pdf

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1. Tax Planning In Respect of Non-Residents
UNIT -IV

2. Meaning of Non-Resident
•An individual is a non-resident in India if he satisfies none of the basic conditions. Additional conditions are not relevant in
case of a non-resident.
•Basic Condition :
•Condition 1 : He is in India in the previous year for a period of 182 days or more .
•Condition 2 : He is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years
immediately preceding the previous year.
•Taxable income to Non-Residents
•1. Interest to non-residents
•2.Salaries to non-residents
•3.Exemptions to non-residents
•Interest to non-resident :
•The following interest incomes are exempt from tax.
•(a) In the case of a non-resident , interest on bonds or securities notified by the Central government including income by
way of premium on the redemption of such bonds.
•(b) In the case of a person resident outside India ( under Foreign Exchange Management Act ) income from interest on
money standing to credit in a non-resident (external) account in India in accordance with the said Act.

3. Salary to non-resident
•(i) Tax on salary of non –resident Technicians :
•Exemption u/s 10(5B) is not taxable from the assessment year 2003-04.
•(ii) Salaries of other foreign citizens tax treatment of salary received by other foreign nationals as
follows :
•(a) Salary of diplomatic personnel [sec 20 (6))ii)] :
•Remuneration received by foreign citizen as an official of an embassy , high commission , legation,
consulate or trade representation of foreign state , or a member of the staff of any of tat official
will be exempt from tax if corresponding Indian official in that foreign country enjoys a similar
exemption.
•(b) Salary of foreign employees [sec 10 (6) (vi) ] :
•The remuneration received by a foreign national , as an employee of a foreign enterprise for
services rendered by him during his stay in India , is totally exempt from tax provided :
•(i)The foreign enterprise is not engaged in any business or trade in India
•(ii) His stay in India does not exceed a period of 90 days in such previous year
•(iii) Such remuneration is not liable to be deducted from the income of the employer chargeable
under the Income Tax Act.

4. Salary to non-resident
•(c) Salary received by a ships crew [sec 10(6)(viii)]:
•It is exempt from the tax provided his total stay in India does not exceed 90 days during the previous year.
•(d) Remuneration of a foreign trainee [sec 10 (6) (xi)] :
•It is exempt from tax , if remuneration is received in connection with training in an undertaking or office owned by:
•1. The govt or
•2. Any company owned by the Central govt or any State govt or
•3. Any company which is subsidiary of a company .
•4. Any statutory corporation or
•5. Any co-operative society , wholly financed by the Central govt or any state govt.
•(e) Remuneration out of funds of an International Organization [sec 10(8A) (8B) ] :
•The following will chargeable to tax.
•Section 10 (8A)
•Case 1 : Any remuneration or fee received by him or directly or indirectly out of the funds made available to an
international organization referred as agency under a technical assistance grant agreement between the agency
and the govt of a foreign state.
•Case 2 : Any other income which accrues or arises to him or it outside India , and is not deemed to accrue or arise
in India , in respect of which such consultant is required to pay any income or social taxa to the govt of the country
of his its origin

5. Relief for Double Taxation
•Foreign Income of a person generally becomes liable to tax in two countries the country in which income is earned and the
country in which the person is resident.
•Double taxation of such income is avoided by means of double taxation avoidance agreement (ADT) entered into by the
government of India with the governments of other countries u/s 90 where the incomes accrues or arises in a country
with which no agreement exists , unilateral tax relief is provided on the doubly taxed income under the provisions of
section 91.
•The government of India has entered into comprehensive agreements for avoidance of double taxation with 57 countries.
•Modes of Relief under ADT agreements :
•Generally there are two modes of granting relief under ADT agreements –
•(a) Exemption method and
•(b) Tax credit method under exemption method a particular income is taxed in one of the two countries under tax credit
method , an income is taxable in both the countries in accordance with their respective tax laws read with the ADT
agreement .
•However the country of residence of the tax changed thereon in the country of source against the tax charged on such
income in the country of residence.
•In India ADT agreements , double taxation relief is provided by combination of the two modes.

6. Tax paid on behalf of Non-Resident
•(i) Exemption from tax paid on behalf of foreign companies in respect of certain income [sec 10 (6A)] :
•The following conditions should be satisfied –
•Condition 1: The tax payer is a foreign company.
•Condition 2 : It has income by way of royalty or fees for technical services.
•Condition 3 : Such royalty is received from the Central Govt or state govt or an Indian concern under an agreement made afterMay 31 ,
but before June 1, 2002.
•Condition 4 : The above agreement is in accordance with the industrial policy of the Indian govt or is approved by the Central govt.
•Condition 5 : The payer of income pays tax liability of the foreign company in respect of the above incomes.
•(ii) Tax paid on behalf of non-residents / foreign companies in respect of other income [sec 10(6B)] :
•The following conditions should be satisfied
•Condition 1 : The tax payer is non-resident (not being a company or a foreign company)
•Condition 2 : It gets income not being salary , royalty or technical fees from the central govt , state govt or an Indian concern.
•Condition 3 : The above income is generated in pursuance of an agreement entered into (before June 1,2002)by the central govtwith a
foreign govt/international organization or any related agreement approved by the central govt(before June 1,2002).
•Condition 4 : Tax liability of the recipient in respect of the above income is not by the payer.

7. Tax paid on behalf of Non-Resident
•Technical fees received by a notified foreign company :
•It is exempt , if such income is received in pursuance of an agreement entered into with the central govt to provide servicesin
or outside India in projects connected with security of India .
•Fees received by non-resident consultants and their employer :
•Under section 10 (8A) the incomes as mentioned in case of consultant are exempt from tax.
•Interest Exempt under section 10 (15) :
•Interest earned from the following is exempt from tax to the extent to which amount of these certificates and deposits do
not exceed , in each case , the maximum amount which is permitted to be invested or deposited there in.
•Income by way of interest , premium on redemption or other payments on notified bonds securities or certificates issued by
the govt and interest on notified deposits.
•Interest on notified capital investment bonds in the case of individual and HUF’S.
•Interest received by a non-resident Indian from notified bonds [i.e. NN bonds and NRI bonds (secondaries) issued by state
bank of India] by virtue of being a nominee or survivors of such non-resident Indian or by an Individual to whom the bonds
have been gifted by the non-resident Indian.
•Interest on securities held by the Issue Department of the Central Bank of Ceylon.
•Interest payable to any foreign bank performing central banking functions outside India,
•Interest payable to the Nordic Investment Bank on loan advanced by it to a project approved by the Central govt.

8. Interest Exempt under section 10 (15) :
•Interest payable by a scheduled bank to a non-resident or a person who is resident but not ordinarily
resident.
•Interest payable by public sector companies on certain specified bonds and debentures subject to such
conditions including the condition that the holder of such bonds or debentures register his name and
his holding with that company , as may be specified by the Central govt by notification in the official
Gazette.
•Interest on deposits , with a notified scheme , made by a retiring govt employee or public sector
employee out of his retirement benefits for a lock –in-period of 3 years.
•Interest on Gold Deposits Bond issued under the gold deposit Scheme , 1999 or deposit certificates
issued under the Gold Monetization Scheme 2015.
•Interest received by a non-resident or resident but not ordinarily resident in India on deposit made
after March,31
st
,2002 in an offshore banking unit.

9. Computation of Arm’s Length Pricing
•Definition :
•A transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm’s
length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress
from the other party.
•Under Income Tax Act, 1961 Section 92F define Arm’s Length Price is the price applied (or proposed to be applied) when two unrelated persons
enter into a transaction in uncontrolled conditions.
•Unrelated Persons; Section 92A, the persons said to be unrelated if they are not associated or deemed to be associated enterprise.
•Uncontrolled Conditions; are that conditions which are not controlled or suppressed or molded for achievement of a predetermined results.
Methods of Computation of Arm’s Length Price Section 92C Arm’s Length Price can be computed by the following methods;
•1. Comparable Uncontrolled Price Method
•2. Resale Price Method
•3. Cost Plus Method
•4. Profit Split Method
•5. Transaction Net Margin Method
•Note: Where an assesseehas entered into various types of international transactions basis with associated enterprises, arm’s length price
should be determined on a transaction by transaction basis not on an aggregate basis.

10. Computation of Arm’s Length Pricing
•1. Comparable Uncontrolled Price Method(CUP)
•Under this method;
•i) Determined the price charged or paid for the property transferred or services provided in a comparable uncontrolled transaction.
•ii) Such price is adjusted to account for differences, if any, between the International transaction and comparable uncontrolled
controlled transactions or between the parties entering into such transactions, which could materially affect the price in the open
market.
•iii) The adjusted price arrived at under ii) is taken to be Arm’s Length Price in respect of the property transferred or services provided
in international transaction.
•Note: CUP is applied when price is charged for a product or service. This is a comparison of prices charged for the property
transferred or service provided in a controlled transaction to a price charged for property or services transferred in a comparable
uncontrolled transaction.
•2. Resale Price Method
•i) The price at which property purchased or services obtained by the enterprise from an associated enterprise are resold or are
provided to an unrelated enterprise, is identified.
•ii) Such resale price is reduced by the amount of normal gross profit margin accruing to the enterprise or to an unrelated enterprise
from the purchase and resale of the same or similar property or from obtaining and providing the same or similar services in a
comparable uncontrolled transaction, or a number of such transactions;
•iii) The price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase ofthe
property or obtaining the services.
•iv) The price so arrived at is adjusted to take into account the functional and other differences including differences in accounting
practices , if any , between the international transaction and the comparable uncontrolled transactions, or between the enterprises
entering into such transactions, which could materially affect the amount of gross profit margin in the open market;

11. Computation of Arm’s Length Pricing
•v) The adjusted price arrived at iv) is taken to be arm’s length price in respect of the purchase of property or obtaining ofthe
services by the enterprise from the associated enterprise.
•Note: This is applicable when property is purchased or services are obtained from associated enterprises and the same are sold
to unrelated enterprises. This is based on the price of a property or service purchased or obtained from an associated enterprise
and further resale of the same to unrelated enterprise.
3. Cost Plus Method
Rule 10B prescribes the manner in which CPM can be applied. The text reads as follows:
(i)the direct and indirect costs of production incurred by the enterprise in respect of property transferred or services provided to
an associated enterprise, are determined;
(ii)the amount of a normal gross profit mark-up to such costs (computed according to the same accounting norms) arising from
the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a
comparable uncontrolled transaction, or a number of such transactions, is determined;
(iii)the normal gross profit mark-up referred to in sub clause (ii) is adjusted to take into account the functional and other
differences, if any, between the international transaction or the specified domestic transaction and the comparable
uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect such profit
mark-up in the open market;
(iv)the costs referred to in sub-clause (i) are increased by the adjusted profit mark-up arrived at under sub-clause (iii);
(v)v) the sum so arrived at is taken to be an Arm’s Length Price in relation to the supply of the property or provision of services
by the enterprise;”
Note: This method is applicable where some semi finished goods are sold between related parties or similar situations or in respect
of joint facility agreements, long term buy and supply arrangements of provisions of services.

12. Computation of Arm’s Length Pricing
•4. Profit Split Method
•i) The combined net profit of the associated enterprises arising from the international transaction in which they
are engaged, are determined;
•ii) The relative contribution made by each of the associated enterprises to the earning of such combined net
profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks
assumed by each enterprise and on the basis of reliable external market data which indicates how such
contribution would be evaluated by unrelated enterprises performing comparable functions in similar
circumstances.
•iii) The combined net profit is then split among the enterprises in proportion to their relative contributions, as
evaluated under ii);
•iv) The profit thus apportioned to the assesseis taken into account to arrive at arm’s length price in relation to
the international transaction.
•Note: This method is applicable mainly in international transactions involving transfer of unique intangibles or in
multiple international transactions which are so interrelated that they cannot evaluated separately for the
purpose of determining the arm’s length price of any one transaction.
•5. Transactional Net Margin Method (TNMM)
•i) The net profit margin realized by the enterprise from an international transaction entered into with an
associate enterprise is computed in relation to costs incurred or sales effected or assets employed or to be
employed by the enterprise or having regard to any other relevant base;
•ii) The net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled
transaction or a number of such transactions is computed having regard to the same basis;

13. Computation of Arm’s Length Pricing
•iii) The net profit margin referred to in ii) arising in comparable uncontrolled transactions is adjusted to take into
account the differences , if any between the international transaction and the comparable , uncontrolled
transactions, or between the enterprises entering into such transactions , which could materially affect the
amount of net profit margin in the open market;
•iv) The net profit margin realized by the enterprise and referred in i) is established to be the same as the net
profit margin referred in iii);
•v) The net profit margin thus established is then taken into account to arrive at an arm’s length price in relation
to the international transaction.
•Note: The TNMM requires establishing comparability level at a broad functional level. It requires comparison
between net margin derived from operation of the uncontrolled parties and net margin derived by an associated
enterprise on similar operation.
•Under this method, the net profit margin realized by an associated enterprise from an international transaction is
computed in relation to a particular factor such as costs incurred, sales, assets utilized, etc.
•The net profit margin earned by an associate enterprise is compared with net profit margin of uncontrolled
transactions to arrive at arm’s length price.

14. Provisions Relating to Transfer Pricing under Income Tax Act 1961
•With the advent of MNCs(Multi National Concerns) a trend has also been adopted by the MNCs to structure their
investments and business strategy in such a way that profits are maximized in such jurisdictions where tax rates are
low, which give rise to the emergingproblem of transfer pricing all over the world.
•Many countries have made laws to deal with the issue of transfer pricing. India has been a late entrant in making
provisions under the Income Tax Act to tackle the issue of transfer pricing.
•Although there existed section 92 under Income tax Act 1961 but there were not relevant rules which could help tackle
the issue of transfer pricing.
•Section 92A to 92F had been inserted to deal with transfer pricing by the Finance Act, 2001.
•Some views are expressed in this article as below explaining provisions under the Income Tax Act 1961 dealing with
transfer pricing.
•What is Transfer Pricing:
•Usually there is a tendency among MNCs to adjust their international transactions in such a way that maximum profit
arises in that country where the rate of tax is lowest and minimum profit arises in that country where the rate of tax is
highest.
•This creates the problem of transfer pricing. Thus there may be chances that MNCescape tax in those countries
where the tax rate is more by adjusting their international transaction and declaring lesser profits in such country. This
can be explained with an example:

15. Provisions Relating to Transfer Pricing under Income Tax Act 1961
•Suppose a subsidiary company, resident in country A (which has a tax rate of, say, 30%) manufactures goods and transfers themtoits
parent company in country B (which has a tax rate of 20%) for trading.
•In order to increase the overall profits of the group company, it will seek to supply the goods at prices which are lower than the market
price.
•So, in effect, the subsidiary company in country A will have lower profits and hence, a lower tax incidence whereas the parent company in
country B is affected in the opposite manner higher profits due to low costs, but lower taxes because of the tax rate.
•Transfer pricing deals with the technique where parent companies sell goods and services to subsidiary entities at an inflated price to
deliberately reduce profits and tax liability.
•The law requires that goods and services should be sold to subsidiary companies at arm’s length price —the price at which goods are
traded between unconnected companies.
•In order to cover such tendencies of MNCs section 92A to 92F have been enactedand section 271AA, 271BA and 271G have been
incorporated and section 271 has been amended providing for penal provisions in this regard.
•How the income from international transactions will be computed:
•As per section 92 any income from international transaction shall be computed as per arm’s length price.
•Any allowance of interest or expenses with respect to the above income shall also be computed having regarded to arm’s lengthprice.
•Further where, in an international transaction, two or more associated enterprises enter into a mutual agreement for the allocation or
apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility
provided or to be provided or apportioned to or as the case may be, contributed by, any such enterprises shall be determined having
regard to the arm’s length price of such benefit, service or facility, as the case may be.

16. Provisions Relating to Transfer Pricing under Income Tax Act 1961
•In simple words it means that not only the income from an international transaction is to be computed as per arm’s length
price but also any expense or cost to be incurred in an international transaction in connection with a benefit or service or
facility to be provided will be computed as per arm’s length price.
•Section 92 also provides that its provisions shall not apply where it has effect of reducing the income chargeable to tax or
increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the
previous year in which the international transaction was entered into.
•What is an International Transaction:
•To apply the provisions related to transfer pricing as contained u/s 92, 92A to 92F there must be an international
transaction.
•As per section 92B an international transaction means a transaction between two or more associated enterprises, either
or both of whom are non-resident and such transaction is in the nature of purchase, sale or lease of tangible or intangible
property or provision of services, or lending or borrowing money or any other transaction having a bearing on the profits,
income, losses or assets of such associated enterprises.
•International transaction shall also include a mutual agreement or arrangement between two or more associated
enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in
connection with a benefit, service or facility provided or to be provided to any of such associated enterprises.
•Further section 92B provides that, where a transaction entered into by an enterprise with a person other than an
associated enterprises and there exist a prior agreement in relation to the relevant transaction between such other person
and associated enterprise, or the terms of the relevant transaction are determined in substance between such other
person and the associated enterprises then such transaction shall also be treated as an international transaction.

17. Provisions Relating to Transfer Pricing under Income Tax Act 1961
•What is associated Enterprises:
•To apply the provisions relating to transfer pricing there must also be associated enterprises.
•Which enterprises can be termed as associated enterprises can be known u/s 92B.
•As per section 92B(i) the associated enterprises in relation to another enterprise is:
•(a)which participates, directly or indirectly, or though one or more intermediaries, in the management or control or capitalof
other enterprise; or
•(b)in respect of which, one or more persons who participate directly or indirectly or through one or more intermediaries, inits
management or control or capital, are the same persons who participate, directly or indirectly or through one or more
intermediaries, in the management or control or capital of the other enterprise.
•Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,-
•(a)One enterprise holds, directly or indirectly, shares carrying not less than 26 per-cent of the voting power in the other
enterprise; or
•(b)Any person or enterprise holds, directly or indirectly, shares carrying not less than 26 per-cent of the voting power in each
of such enterprises; or
•(c)A loan advanced by one enterprise to the other enterprise constitutes not less than 26 percent of the book value of the total
assets of other enterprise; or
•(d)One enterprise guarantees not less than 10 per-cent of the total borrowings of the other enterprise; or
•(e)More than half of the board of directors or members of the governing board, or one or more of the executive directors or
executive members of the governing board of one enterprise, are appointed by the other enterprise;
•(f)More than half of the board of directors or members of the governing board, or one or more of the executive directors or
executive members of the governing board of each of the two enterprisesare appointed by the same person or persons; or

18. Provisions Relating to Transfer Pricing under Income Tax Act 1961
•g)The manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on
the use of know-how, patents, copyrights, trademarks, licenses, franchisees or any other business or commercial rights of
similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design,
secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise is the
owner or in respect of which the other enterprise has executive rights; or
•(h)90 per cent or more of the raw materials and consumables required for the manufacture or processing of goods or
articles carried out by one enterprise, or by persons specified by the other enterprise, and the prices and other conditions
relating to the supply are influenced by such other enterprise;
•(i)the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons
specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other
enterprise; or
•(j)where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his
relative or jointly by such individual and relative of such individual; or
•(k)where one enterprise is controlled by a Hindu undivided family, the other enterprise is also controlled by a member of
such HUF or by a relative of a member of such HUF or jointly by such member and his relative; or
•(l)where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than
10 percent interest in such firm, association of person or body of individual.
•(m)There exists between the two enterprises, any relationship of mutual interest, as may be prescribed.

19. Advance Ruling
•TheschemeofadvancerulingswasintroducedbytheFinanceAct,1993.ChapterXIX-BoftheIncome-taxAct,whichdeals
withadvancerulings,cameintoforcewitheffectfrom1-6-1993.
•Undertheschemethepowerofgivingadvancerulingshasbeenentrustedtoanindependentadjudicatorybody.Accordingly,
ahighlevelbodyheadedbyaretiredjudgeoftheSupremeCourthasbeenset-up.
•Thisisempoweredtoissuerulings,whicharebindingbothontheIncome-taxDepartmentandtheapplicant.Theprocedure
prescribedissimple,inexpensive,expeditiousandauthoritative.
•AdvanceRulingmeanswrittenopinionorauthoritativedecisionbyanAuthorityempoweredtorenderitwithregardtothetax
consequencesofatransactionorproposedtransactionoranassessmentinregardthereto.
•Ithasbeendefinedinsection245N(a)oftheIncome-taxAct,1961asamendedfromtime-to-time.
•Applicant—Undersection245Nanadvancerulingcanbeobtainedbythefollowingpersons:-
1.anon-resident
2.aresident-undertakingproposingtoundertakeatransactionwithanon-residentcanobtainadvancerulinginrespectofany
questionoflaworfactinrelationtothetaxliabilityofthenon-residentarisingoutofsuchtransaction
3.aresidentwhohasundertakenorproposetoundertakeoneormoretransactionsofvalueofRs.100croreormoreintotal
[videNotificationNo.73,dated28-11-2014]
4.anotifiedpublicsectorcompany
5.anyperson,beingaresidentornon-resident,canobtainanadvancerulingtodecidewhetheranarrangementproposedto
beundertakenbyhimisanimpermissibleavoidancearrangementsandmaybesubjectedtoGeneralAntiAvoidanceRules
ornot
6.anapplicantasdefinedinsection28E(c)oftheCustomsAct,1962
7.anapplicantasdefinedinsection23A(c)oftheCentralExciseAct,1944
8.anapplicantasdefinedinsection96A(b)oftheFinanceAct,1994

20. Advance Ruling
•Salientfeatures:—a.relatestoatransactionenteredintoorproposedtobeenteredintobytheapplicant:-
•Theadvancerulingistobegivenonquestionsspecifiedinrelationtosuchatransactionbytheapplicant.
•b.Questionsonwhichrulingcanbesought:—
•Eventhoughthewordusedinthedefinitionis"question",itisclearthatthenon-residentcanraisemorethanonequestionin
oneapplication.ThishasbeenmadeamplyclearbyColumnNo.8oftheformofapplicationforobtaininganadvanceruling
(FormNo.34C)
•Thoughtheword"question"isunqualified,itisonlypropertoreaditasareferencetoquestionsoflaworfact,pertainingtothe
incometaxliabilityofthenon-residentquathetransactionundertakenorproposedtobeundertaken.
•Thequestionmaybeonpointsoflawaswellasonfacts;therefore,mixedquestionsoflawandfactcanalsobeincludedin
theapplication.Thequestionsshouldbesodraftedthateachquestioncanberepliedinbriefanswer.Thismayneedbreaking-
upofcomplexquestionsintotwoormoresimplequestions.
•Thequestionsshouldariseoutofthestatementoffactsgivenwiththeapplication.Norulingwillbegivenonapurely
hypotheticalquestion.Aquestionnotspecifiedintheapplicationcannotbeurged.Normallyaquestionisnotallowedtobe
amendedbutindeservingcasestheAuthoritymayallowamendmenttooneormorequestions.
•Subjecttothelimitations,thequestionmayrelatetoanyaspectofthenon-resident'sliabilityincludinginternationalaspects
andaspectsgovernedbydoubletaxagreements.Thequestionsmayevencoveraspectsofalliedlawsthatmayhavea
bearingontaxliabilitysuchasthelawofcontracts,thelawoftrustsandthelike,butthequestionmusthaveadirectbearing
onandnexuswiththeinterpretationoftheIndianIncome-taxAct.
•AdvanceRulingscanbeobtainedtodeterminewhetheranarrangement,whichisproposedtobeundertakenbyanyperson
beingaresidentoranon-resident,isanimpermissibleavoidancearrangementasreferredtoinChapterX-Aornot(General
AntiAvoidanceRules).
•c.Time-limitforadvanceruling:—
•TheAuthorityshallpronounceitadvancerulingwithin6monthsofreceiptoftheapplication.
•d.Bindingnatureofadvanceruling:—
•Theeffectoftherulingisstatedtobelimitedtothepartiesappearingbeforetheauthorityandthetransactioninrelationtowhichthe
rulingisgiven.ThisisbecausetherulingisrenderedonasetoffactsbeforetheAuthorityandcannotbeforgeneralapplication.

21. Advance Ruling
•Procedureofapplicationforadvanceruling:AnapplicantdesirousofobtaininganadvancerulingshouldapplytotheAuthorityintheprescribed
formstatingthequestiononwhichtherulingissought.TheapplicationhastobemadeinquadruplicateinFormNos:—
•34C-applicabletoanon-residentapplicant
•34D-applicabletoaresidenthavingtransactionswithanon-resident
•34DA-applicabletoaresidentseekingadvancerulinginrelationtohistaxliabilityarisingoutofoneormoretransactionsvaluingRs.100croreor
moreintotalwhichhasbeenundertakenorproposedtobeundertakenbyhim
•34E-ApplicabletoPublicSectorCompanyasnotifiedbygovernmentviaNotificationNo.11456,dated3/8/2000
•34EA-fordeterminingwhetheranarrangementisanimpermissibleavoidancearrangementasreferredtoinChapterX-Aornot
Category of Applicant Category of case Fee
A non-resident applicant. Amount of one or more transaction, entered into or proposed to
be undertaken, in respect of which ruling is sought does not
exceed Rs. 100 crore.
Rs.2,00,000
A resident seeking advance ruling in relation to
the tax liability of a non-resident arising out of
transaction undertaken or proposed to be
undertaken by him with a non-resident.
Amount of one or more transaction, entered into or proposed to
be undertaken, in respect of which ruling is sought exceeds Rs.
100 core but does not exceed Rs. 300 crore.
Rs.5,00,000
A resident seeking advance ruling in relation to
his tax liability arising out of one or more
transactions valuing Rs.100 crore or more in
total which has been undertaken or is proposed
to be undertaken by him
Amount of one or more transaction, entered into or proposed to
be undertaken, in respect of which ruling is sought exceeds Rs.
300 crore
Rs.10,00,000
Any other applicant In all cases Rs.10,000

22. Advance Pricing Agreement
•Evolution of advance pricing agreement concept in India The transfer pricing framework in India has
been introduced through Finance Act, 2001 which requires determination of Arm Length Price (ALP)
for all the international transaction between associated enterprises.
•Since then, the ALP determination has been the matter of long aged and numerous disputes
between department of revenue and taxpayer.
•To minimize these disputes, the concept of advance pricing agreement has been introduced in India
by Finance Act, 2012 through insertion of section 92CC and 92CD read with rule 10F to 10G and
44GA.
•What is Advance Pricing Agreement ?
•As per OECD transfer pricing guidelines, APA (or arrangements) is an arrangement that
determines, in advance of controlled transactions, an appropriate set of criteria for the determination
of the transfer pricing for those transactions over a fixed period.
•In other words, an APA is an agreement between board and taxpayer/ any person for determining
ALP for specifying the manner of determining ALP in relation to international transaction.
•Section 92CC of income tax act, 1961 enables the board to enter into APA with any person for
determining ALP or manner of determining ALP in relation to international transaction.

23. Advance Pricing Agreement
•Procedure for application of APA: (Rule 10I)
•1. Person (who has undertaken international transaction or who is expected to undertake international transaction) may
furnish an application in form 3CED to Director General of Income Tax (International Taxation) in case of unilateral
agreement and to Competent Authority of India in case of bilateral or multilateral agreement.
•2. Timing for filing of application:
•a) Before undertaking the international transaction (in case of non-recurring transaction) b) Before first day of previous
year (in case of recurring transactions).
•3. Pre-filing Consultation:
•Since the application of advance pricing agreement involves huge amount of fees, law contains a provision whereby a
person anticipating to enter into APA with board has an option to make a request in form 3CEC to Director General of
Income Tax (International Taxation) for determining scope of agreement, identifying TP issues, discuss broad terms of
agreement, determining suitability of international transaction for agreement.
•This will enable the person to decide whether to file application for APA or not and for which type of transactions, APA to
be filed.
•This will neither bind the person/ board to enter into any kind of agreement nor will be considered as an application for
APA.
•4. Board shall obtain approval of Central Government to make this agreement a valid APA as per the requirements of
section 92CC(1).
.

24. Value to transaction for which APA is proposed Fees Amount
Less than INR 100 Crores INR 10 Lakhs
More than INR 100 Crores but up to INR 200 Crores INR 15 Lakhs
More than INR 200 Crores INR 20 lakhs
Advance Pricing Agreement
Withdrawal of APA application
Application can be withdrawn by the applicant at any time before the finalization of agreement
(i.e. signed by CBDT). However, fees paid during filing of application shall not be refunded.
Validity of APA [section 92CC(4)]
The APA can be entered for the period mentioned in the agreement. However, it shall not
exceed 5 consecutive previous years.

25. Advance Pricing Agreement
•Revision and Cancellation of APA
•1. Revision of agreement [Rule 10-Q]: Agreement can be revised by board (either Suo moto or on
request of the assesseor DGIT or competent authority) in the following circumstances:
•a. Change in critical assumptions or failure to meet ant condition of agreement.
•b. Change in law that modifies any matter which renders the agreement non-binding.
•c. Request from competent authority from other country (in case of bilateral or multilateral
agreement).
•2. Cancellation of agreement:
•Agreement can be cancelled by board in the following circumstances:
•a. Failure by assesseto comply with terms of agreement (ascertained by compliance audit report).
•b. Assessehas failed to furnish annual compliance report.
•c. Annual compliance report furnished by assessecontains material errors. d. Assesseis not in
agreement with the revision proposed.