Rule 109 of the Draft Income-tax Rules, 2026 prescribes the detailed procedure for processing Advance Pricing Agreement (APA) applications once they are admitted under rule 108. The APA team or the competent authority of India processes the application through consultations and discussions with the applicant, including meetings, calls for additional documents, business premises visits, and other inquiries as necessary. In unilateral cases, proceedings may be completed, where possible, within one year from the end of the financial year in which the application is admitted. For bilateral or multilateral agreements, the competent authority forwards the application for examination, draft reporting, and coordination under rule 122 where required. A mutually agreed draft agreement is then prepared and, after approval by the Central Government, formally entered into by the Board. A copy of the executed agreement is forwarded to the jurisdictional Commissioner. If no agreement is reached within three years from the end of the financial year of application filing, the Board may direct closure of proceedings where the applicant fails to provide required information or comply with directions, after giving an opportunity of being heard. For unilateral APAs involving certain IT services, proceedings are closed if no agreement is concluded within two years, extendable by six months upon request. In cases of closure, the application fee is not refundable.

Extract of Rule No. 109 of Draft Income-tax Rules, 2026

Rule 109

Procedure.

(1) If the application referred to in rule 108 has been allowed to be proceeded with, the team or the competent authority of India or his representative shall process the same in consultation and discussion with the applicant in accordance with provisions of this rule.

(2) For the purpose of sub-rule (1), the team or the competent authority of India or its representative may—

(i) hold meetings with the applicant on such time and date as it deems fit;

(ii) call for additional document or information or material from the applicant;

(iii) visit the applicant’s business premises; or

(iv) make such inquiries as it deems fit in the circumstances of the case.

(3) In the case of a unilateral agreement, the proceedings referred to in sub-rule (2) may, where it is possible, be completed within a period of one year from the end of the financial year in which application referred to in rule 108 has been allowed to be proceeded with.

(4) For the purpose of sub-rule (1), the applicant may provide further document and information for consideration of the team or the competent authority of India or his representative.

(5) For bilateral or multilateral agreement, the competent authority shall forward the application to the Principal Chief Commissioner of Income-tax (International Taxation) who shall assign it to one of the teams.

(6) The team, to whom the application has been assigned under sub-rule (4), shall carry out the enquiry and prepare a draft report which shall be forwarded by the Principal Chief Commissioner of Income-tax (International Taxation) to the competent authority of India.

(7) If the applicant makes a request for bilateral or multilateral agreement in its application, the competent authority of India shall in addition to the procedure provided in this rule invoke the procedure provided in rule 122.

(8) The Principal Chief Commissioner of Income-tax (International Taxation) (for unilateral agreement) or the competent authority of India (for bilateral or multilateral agreement) and the applicant shall prepare a proposed mutually agreed draft agreement enumerating the result of the process referred to in sub-rule (1) including the effect of the arrangement referred to in rule 122(5) which has been accepted by the applicant in accordance with rule 122(8).

(9) The agreement shall be entered into by the Board with the applicant after its approval by the Central Government.

(10) Once an agreement has been entered into, the Principal Chief Commissioner of Income tax (International Taxation) or the competent authority of India, as the case may be, shall cause a copy of the agreement to be sent to the Commissioner of Income-tax having jurisdiction over the assessee.

(11) Where no agreement has been entered within a period of three years from the end of the financial year in which application referred to in rule 108 is furnished then the Board may direct that the proceedings in respect of such an application shall be treated as closed, if–

(a) the applicant has not provided any document or information or material relevant, as required under sub-rule (2)(ii), for proceeding with the application; or

(b) the applicant fails to comply with any direction issued for holding meeting, facilitating the visit of premise, or making of inquiries in terms of sub-rule (2).

(12) The directions under sub-rule (11) shall be given after providing an opportunity of being heard to the applicant.

(13) Where an application is made for a unilateral advance pricing agreement for transaction in respect of provision of information technology services referred to in rule 89(2) [Table: Sl. No. 1] and the agreement is not entered into within a period of two years from the end of the quarter in which the application is made, the proceedings in respect of such an application shall be treated as closed.

(14) For the purposes of sub-rule (13), the assessee may request for an additional period of six months beyond the time limit mentioned therein and in such a case the aforesaid time limit shall be extended by an additional period of six months.

(15) Where the proceedings are closed, the fee paid by the applicant under rule 106 shall not be refunded.