Income Tax Law | Advance Rulings

Section 245O of the Income-tax Act, 1961 - Authority for Advance Rulings

Section 245O governed the constitution, membership, administration and benches of the former Authority for Advance Rulings (AAR). Following the Finance Act, 2021 reforms, advance-ruling work moved to the Board for Advance Rulings (BAR). For the law applicable from 1 April 2026, see section 381 of the Income-tax Act, 2025.

What was the Authority for Advance Rulings?

The Authority for Advance Rulings was a statutory body intended to determine specified tax questions in advance, including questions concerning certain transactions involving non-residents. An advance ruling is a determination on a question of law or fact within the statutory categories and subject to the application requirements and exclusions under the applicable Act.

Section 245O - provisions explained

Sub-section (1): Constitution of the Authority

The Central Government was empowered to constitute the Authority for Advance Rulings. Amendments relating to customs matters restricted the Authority's customs role after establishment of the Customs Authority for Advance Rulings. A further proviso introduced through the Finance Act, 2021 provided for the Authority to cease operating from a notified date.

Sub-section (1A): Customs appellate role

The provision addressed the Authority's transitional role as an appellate authority in customs advance-ruling matters, subject to restrictions on appeals against its own earlier rulings. These provisions relate to the historical institutional framework.

Sub-section (2): Composition

The earlier Authority consisted of a Chairman and such number of Vice-chairmen, revenue Members and law Members as the Central Government appointed by notification.

Sub-section (3): Qualifications

The statute prescribed judicial qualifications for the Chairman and Vice-chairmen, senior revenue-service qualifications for revenue Members and Indian Legal Service qualifications for law Members. These were qualifications for appointments to the former Authority, not the present two-member BAR.

Sub-sections (4) and (5): Service conditions and staff

Terms of service, salaries and allowances were to be prescribed, while the Central Government was to provide officers and employees needed for the Authority's work.

Sub-sections (6), (6A) and (6B): Benches and acting Chairman

The Chairman could constitute benches from among the members. Vacancy or temporary inability of the Chairman was addressed through arrangements involving the senior-most Vice-chairman.

Sub-sections (7) and (8): Bench composition and location

A bench ordinarily included the Chairman or Vice-chairman, a revenue Member and a law Member, subject to the statutory proviso for income-tax matters. The Authority was located in the National Capital Territory of Delhi, with benches at notified locations.

Finance Act, 2021: Transition to the Board for Advance Rulings

The Finance Act, 2021 introduced section 245-OB in the Income-tax Act, 1961 to establish one or more Boards for Advance Rulings. Under that provision, each Board consisted of two members, each an officer not below the rank of Chief Commissioner, nominated by the Board (CBDT). The earlier judicial-member composition of the AAR was therefore not carried forward into the BAR.

Related amendments provided for transfer of qualifying pending applications and adjusted procedures. The transition should be considered when reviewing an older AAR ruling or an application made before the institutional change.

Position under the Income-tax Act, 2025

The Income-tax Act, 2025 took effect on 1 April 2026. Section 381 now provides for the constitution and composition of the Board for Advance Rulings. Section 380 contains interpretation provisions, section 383 deals with applications and section 384 addresses the procedure on receipt of an application. The Income Tax Department states that the 2025 Act did not introduce substantive or procedural changes to the post-2021 advance-ruling framework.

Under the savings provisions, including section 536, proceedings and matters concerning earlier periods may continue under the applicable earlier law. The date of the application, relevant tax year and procedural stage should therefore be checked before deciding which provision governs a particular case.

Practical importance

• Identify whether the matter concerns the former AAR, the BAR under the 1961 Act or the BAR under the 2025 Act.
• Confirm that the applicant and question fall within the advance-ruling eligibility provisions.
• Review statutory restrictions on admissibility, including matters already pending before specified authorities or courts.
• Use the appropriate procedural provision and rules for the relevant period.

Official legal references

• Income Tax Department - Section 245O (historical statutory text)
• Income Tax Department - Section 245-OB (Board for Advance Rulings)
• Income Tax Department - Income-tax Act, 2025 as amended by Finance Act, 2026 (PDF)
• Income Tax Department - Appeals, revisions and advance-ruling FAQs

Updated: 27 October 2026. This article is general legal information. For a particular transaction or pending proceeding, consult the statutory text, relevant notifications and applicable procedural rules.