Section 92CC of the Income-tax Act: Advance Pricing Agreements
An advance pricing agreement (APA) provides greater certainty about how the arm's length price of covered international transactions will be determined. Section 92CC of the Income-tax Act, 1961 establishes the legal framework for such agreements with the Central Board of Direct Taxes (CBDT).
What is an advance pricing agreement?
An APA is an agreement made in advance between the tax administration and an eligible taxpayer that determines the arm's length price (ALP), or the method for determining it, for specified international transactions. It can reduce uncertainty and future transfer-pricing disputes, provided its terms and critical assumptions are met.
Section 92CC: explanation of each statutory provision
Sub-section (1): power to enter into an APA
The CBDT, with Central Government approval, may enter into an APA with any person to determine the ALP or the manner of its determination for an international transaction. The provision is directed to international transactions, not automatically to all specified domestic transactions.
Sub-section (2): pricing methodology
The agreement may use a method in section 92C or another suitable method, with appropriate adjustments or variations.
Sub-section (3): precedence of the APA
Despite sections 92C and 92CA, the ALP for a covered international transaction is determined in accordance with the executed APA.
Sub-section (4): period of validity
An APA may cover a period specified in the agreement of up to five consecutive previous years. Renewal is a separate process and is not automatic.
Sub-sections (5) and (6): binding effect and changed circumstances
The APA binds the taxpayer for the covered transaction and the relevant Commissioner and subordinate income-tax authorities. It ceases to bind where a relevant change in law or facts affects the agreement. The agreement's critical assumptions and procedural rules also matter.
Sub-sections (7) and (8): fraud or misrepresentation
The CBDT, with Central Government approval, may declare an APA void ab initio if it was obtained by fraud or misrepresentation of facts. The Act then applies as if no APA existed. The statutory period between the agreement and voiding order is excluded in calculating limitation; if the remaining limitation period is under 60 days, it is extended to 60 days.
Sub-section (9): APA scheme
The CBDT may prescribe rules governing applications, fees, consultation, negotiation, compliance, revision and cancellation. For the 1961 Act, see Rules 10F to 10T of the Income-tax Rules, 1962 and related rollback rules.
Sub-section (9A): rollback
Subject to prescribed conditions, an APA can extend to a maximum of four previous years before the first covered year. Later amendments also address certain income attributable to operations in India of a non-resident. Rollback is conditional and must not be treated as automatic relief.
Sub-section (10): pending proceeding
Once an APA application is made, the proceeding is deemed pending for the purposes of the Act.
Types of advance pricing agreements
| Type | Parties and scope |
|---|---|
| Unilateral APA | Agreement between the CBDT and the applicant. |
| Bilateral APA | Involves agreement between the competent authorities of India and one treaty partner, followed by the domestic APA. |
| Multilateral APA | Involves competent authorities of India and more than one treaty partner. |
APA application and compliance
- Identify covered international transactions, entities, functions, assets, risks and comparable data.
- Consider pre-filing consultation and choose unilateral, bilateral or multilateral coverage.
- Submit the application in the prescribed form, with the applicable fee and supporting information.
- Participate in the analysis, negotiations and agreement process.
- After execution, follow the agreed methodology, maintain supporting records and meet annual compliance requirements.
- Where applicable, file a modified return under section 92CD and comply with rollback conditions.
2026 rules: The Income-tax Rules, 2026 prescribe the new APA procedure, including pre-filing consultation under Rule 105 and application under Rule 106. Rule 106 specifies Form 51 and a fee of Rs. 20 lakh. Verify the correct form and procedure for the tax year and application date.
Illustrative example
An Indian company provides software development services to its overseas associated enterprise. It seeks an APA covering the margin or methodology for pricing those services for five years. Once agreed and subject to compliance with the agreement, the covered transaction is priced using the APA methodology rather than being redetermined independently under the ordinary transfer-pricing method for those years.
Legislative background
Section 92CC was introduced by the Finance Act, 2012 with effect from 1 July 2012. The Finance (No. 2) Act, 2014 introduced rollback under sub-section (9A), effective 1 October 2014. The APA framework has subsequently been amended; the text and rules for the relevant year must be checked.
Official legislation and guidance
- Income Tax Department: Section 92CC
- Income Tax Department: transfer pricing guidance
- Income-tax Rules, 2026: official notification
- Official Budget 2026 FAQs on advance pricing agreements
- CBDT Circular 10/2015: APA rollback clarifications
Frequently asked questions
How long can an APA remain valid?
Under section 92CC(4), up to five consecutive previous years, as specified in the agreement.
Can an APA apply to earlier years?
Yes. Subject to eligibility and procedural conditions, rollback may cover up to four preceding previous years.
Is an APA binding in every circumstance?
No. Changes in relevant law or facts may affect its binding effect; fraud or misrepresentation can result in the agreement being declared void from the outset.
What is the difference between sections 92CC and 92CD?
Section 92CC authorises and governs the APA; section 92CD sets out how the agreement is given effect, including modified returns and assessments.