Advance pricing agreement
[Section-168 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 168(1) of Income Tax Act 2025
168(1) The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the—
- (a) arm’s length price or specifying the manner in which the arm’s length price is to be determined, in relation to an international transaction to be entered into by that person;
- (b) income referred to in section 9(2), or specifying the manner in which the said income is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non-resident.
Section 168(2) of Income Tax Act 2025
168(2) The manner of determination of the arm’s length price referred to in sub-section (1)(a) or (b) may include, respectively,––
- (a) the methods referred to in section 165(1); or
- (b) the methods provided by rules made under this Act,
with such adjustments or variations, as may be necessary or expedient so to do.
Section 168(3) of Income Tax Act 2025
168(3) Irrespective of anything contained in section 165 or 166 or the methods provided by rules made under this Act,––
- (a) the arm’s length price of any international transaction; or
- (b) the income referred to in sub-section (1)(b),
in respect of which the advance pricing agreement has been entered into, shall be determined as per the advance pricing agreement so entered.
Section 168(4) of Income Tax Act 2025
168(4) The agreement referred to in sub-section (1) shall be valid for such period not exceeding five consecutive tax years as specified in the agreement.
Section 168(5) of Income Tax Act 2025
168(5) The advance pricing agreement entered into shall be binding—
- (a) on the person in whose case, and in respect of the transaction in relation to which, the agreement has been entered into; and
- (b) on the Principal Commissioner or Commissioner, and the income-tax authorities subordinate to him, in respect of the said person and the said transaction.
Section 168(6) of Income Tax Act 2025
168(6) The agreement referred to in sub-section (1) shall not be binding if there is a change in law or facts having bearing on the agreement so entered.
Section 168(7) of Income Tax Act 2025
168(7) The Board may, with the approval of the Central Government, by an order, declare an agreement to be void ab initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.
Section 168(8) of Income Tax Act 2025
168(8) Upon declaring the agreement void ab initio,—
- (a) all the provisions of the Act shall apply to the person as if such agreement had never been entered into;
- (b) irrespective of anything contained in the Act, the period beginning with the date of such agreement and ending on the date of order under sub-section (7) shall be excluded for the purpose of computing any period of limitation under this Act; and
- (c) if immediately after the exclusion of the aforesaid period, the period of limitation, referred to in any provision of this Act, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly.
Section 168(9) of Income Tax Act 2025
168(9) For the purposes of this section, the Board may prescribe a scheme specifying therein the manner, form, procedure and any other matter in respect of the advance pricing agreement.
Section 168(10) of Income Tax Act 2025
168(10) The agreement referred to in sub-section (1), may, subject to such conditions, procedure and manner as prescribed, provide for determining the––
- (a) arm’s length price or specify the manner in which the arm’s length price shall be determined in relation to the international transaction entered into by the person;
- (b) income referred to in section 9(2), or specifying the manner in which the said income is to be determined, as is reasonably attributable to the operations, transactions and activities carried out in India by or on behalf of that non-resident person,
during any period not exceeding four tax years preceding the first of the tax years referred to in sub-section (4).
Section 168(11) of Income Tax Act 2025
168(11) Where an application is made by a person for entering into an agreement referred to in sub-section (1), the proceedings shall be deemed to be pending in the case of the person for the purposes of this Act till such agreement is entered into, or such proceedings are closed as per rules prescribed.
FAQs on Section 168 of Income Tax Act 2025
What is an Advance Pricing Agreement (APA)?
An APA is an agreement between the Board and a person, determining the arm’s length price or the manner in which it is to be determined for international transactions, or income attributable to a non-resident’s operations in India.
Who can enter into an APA?
Any person, including non-residents, who enters into international transactions or whose income is attributable to operations in India, can enter into an APA with the Board.
What transactions are covered under an APA?
APAs cover international transactions under transfer pricing provisions and income referred to in section 9(2) of this Act, attributable to the operations of a non-resident in India.
What methods can be used to determine the arm’s length price under an APA?
The arm’s length price may be determined using methods specified in section 165(1) or as provided by rules under the Act, with necessary adjustments or variations.
Is an APA binding on the tax authorities?
Yes, an APA is binding on the concerned person and on the Principal Commissioner or Commissioner and subordinate income-tax authorities in respect of the person and the covered transactions.
What is the maximum duration for which an APA can remain valid?
An APA can remain valid for a period not exceeding five consecutive tax years, as specified in the agreement.
Can an APA apply to past years as well?
Yes, the agreement may also provide for determination of arm’s length price or attributable income for up to four tax years preceding the first tax year for which the APA is valid.
What happens if there is a change in law or facts after entering into an APA?
If there is a change in law or facts that affects the agreement, the APA will cease to be binding.
Can an APA be cancelled or declared void?
Yes, the Board may declare an APA void ab initio if it is found that the agreement was obtained by fraud or misrepresentation of facts.
What are the consequences if an APA is declared void ab initio?
If declared void, the APA is considered as never having been entered into, and all provisions of the Act will apply accordingly. The period between the date of the agreement and the date of the void order is excluded from limitation periods, and if the remaining limitation is less than 60 days, it will be extended to 60 days.
Are APA proceedings considered “pending” under the Act?
Yes, once an application is made for an APA, the proceedings are deemed to be pending until the agreement is entered into or the application is closed as per prescribed rules.
Who approves the APA process?
The Board enters into APAs with the approval of the Central Government.
Will there be a scheme or procedure notified for APA?
Yes, the Board may prescribe a scheme laying down the manner, form, procedure, and other related aspects for APAs.
Can an APA override methods specified in section 165 or rules under the Act?
Yes, the APA, once entered into, will prevail over the methods in section 165, section 166, or rules made under the Act for the covered transaction or income.
