FAQ’s on income tax advance ruling provisions

FAQ’s ONINCOME TAX ADVANCE RULING PROVISIONS

Q.: What is Authority for Advance Rulings (AAR)?

• The scheme of Advance Rulings has been introduced under the Income-tax Act, 1961. It was reinforced by the Finance Act, 1993. Chapter XIX-B of the Income-tax Act, which deals with advance rulings, came into force with effect from 1-6-1993. Under the scheme, the power of giving advance rulings has been entrusted to an independent adjudicatory body. Accordingly, a high-level body headed by a retired judge of the Supreme Court has been set-up. This is empowered to issue rulings, which are binding both on the Income-tax Department and the applicant. The procedure prescribed is simple, inexpensive, expeditious and authoritative.
• Advance Ruling means written opinion or authoritative decision by an Authority empowered to render it with regard to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto.
• The Authority for Advance Rulings has emerged as an important adjudicatory body on tax matters. Recent rulings by the AAR in Castleton Investment Limited and the MAT controversy have brought the importance of the institution in tax disputes and related matters.
• The Responsibility of the AAR is to provide the facility of ascertaining the income-tax liability of a non-resident as well as that of certain special categories of residents. If an entity or company has any doubt about the tax liability of its business, it can go to the AAR. The AAR here gives a ruling and it will become policy guide to the company as well as to the tax authorities. Hence, the companies can plan their income-tax affairs well in advance and to avoid long drawn and expensive litigation.

• In the case of the Income Tax Appellate Tribunal, a company goes to it if it has a grievance related to the tax notice it has got from the tax authorities. But in the case of AAR, such a notice is not needed to seek its ruling.

Q.: what is Constitution of AAR in India?

• Authority for Advance Rulings consists of a Chairman who is a retired Judge of the Supreme Court and two members of the rank of Additional Secretary to the Government of India, one each from the Indian Revenue Service and the Indian Legal Service. A non-resident or certain categories of the resident can obtain binding rulings from the Authority on the question of law or fact arising out of any transaction/proposed transactions which are relevant for the determination of his tax liability.
• The Authority for Advance Rulings (AAR) pronounces rulings on the applications of the non-resident/residents submitted in the prescribed form following prescribed procedure and such rulings are binding both on the applicant and the income-tax department.
• Thus, the applicant can avoid expensive and time-consuming litigation on any question of law or fact which might arise from normal income-tax assessment proceedings. AAR (Procedure) Rules, 1996 provide a detailed procedure for obtaining advance rulings.

Q.: What is advance ruling?

Advance ruling is basically a written interpretation of tax laws, as made by a Advance Ruling Authority. it’s issued by tax authorities to corporations and individuals who request for clarification of certain tax matters. An advance ruling is usually requested when the taxpayer is confused and unsure about certain provisions. Advance tax ruling is applied for: before starting the proposed activity. as an example, under taxation, advance ruling is obtainable in international taxation. this is often to assist non-residents ascertain the income-tax liability, plan their income-tax beforehand and avoid long drawn and dear legal disputes. As per GST, the advance ruling could be a written decision given by the tax authorities to an applicant on questions referring to the provision of goods/services.

Q.: Why is advance ruling under GST necessary?

The objectives of any advance ruling, as provided under GST Act are as follows –

• Provide certainty for liabilities ahead in reference to a future activity to be undertaken by the applicant
• Attract Foreign Direct Investment (FDI) – By clarifying taxation and showing a transparent picture of the long run liabilities of the FDI. The clarity and clean taxation will attract non-residents who don’t want to induce involved in messy tax disputes.
• Reduce litigation and dear legal disputes
• Give decisions in a very timely, transparent and cheap manner

Q.: When can one request for GST Advance Ruling?

Any taxpayer can request for advance ruling when he’s uncertain of the provisions. Advance tax ruling shall be applicable in respect of – (a) Classification of goods or services or both, under the Act (b) Applicability of a notification which affects the speed of tax (c) Determination of your time and value of supply of goods/services (d) Whether input reduction paid (or deemed to be paid) are going to be allowed (e) Determination of the liability to pay tax on any goods/services (f) Whether the applicant needs to be registered under GST (g) Whether any particular thing done by the applicant regarding goods/services will end in a supply.

Q.: What’s is Procedure on receipt of application?

On receipt of an application, a replica is going to be forwarded to the prescribed officer and he will furnish the mandatory relevant records.

Q.: What is Process of Advance Ruling under GST?

An advance ruling application is required to be sent to Authority for Advance Ruling. In case any individual is unhappy with the advance ruling, the same can appeal to the Appellate Authority for Advance Ruling.

1. Forms for application?

Application for Advance ruling should be made in FORM GST ARA-01 together with Rs. 5,000.

2. Types of the Decision of the Authority?

The Authority may make an order, thereby admitting or rejecting the application made by the aggrieved person.

Q.: Will all applications be allowed?

The Authority won’t admit the application when- (b) the identical matter has already been decided in an earlier case for the applicant (c) the identical matter is already pending in any proceedings for the applicant Basically, Advance Ruling won’t be possible in any pending case or any decision already given. Applications are going to be rejected only after giving a chance of being heard. Reasons for rejection shall tend in writing.

Q.: When will the authority give their decision?

Advance ruling decision are given within 90 days from application. If the members of the Authority differ in opinion on any point, they’ll refer the purpose to the Appellate Authority. Advance Ruling will have prospective effect only.

Q.: On whom will the advance ruling apply?

The advance ruling is going to be binding only – (a) On the applicant (b) On the jurisdictional tax authorities in respect of the applicant. If the law, facts of the first advance ruling change then the advance ruling won’t apply.

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