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Rule 109Published

Rule 109: APA processing, agreement and closure

Rule 109 governs substantive processing after an APA application is allowed to proceed. It permits enquiries and discussions, requires the agreed draft and approval process, and sets distinct rules for possible closure of delayed applications.

Official notified Income-tax Rules, 2026

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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 purposes of sub-rule (1), the team, or the competent authority of India, or its representative may,— (a) hold meetings with the applicant on such time and date as it deems fit; or (b) call for additional document or information or material from the applicant; or (c) visit the applicant's business premises; or (d) 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 the 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 a reasonable opportunity of being heard to the applicant.

(13) Where an application is made for a unilateral advance pricing agreement where the primary covered transaction is the 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 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.

Rule breakdown

Prepare for factual enquiry and discussion

The team or competent authority processes the accepted application in consultation with the applicant. It may hold meetings, request further material, visit business premises and make enquiries.

The applicant may also supply further documents and information. Keep responses consistent with the actual functions, assets, risks and proposed covered transactions.

Unilateral processing period is qualified

For unilateral cases the rule says the relevant proceedings may, where possible, be completed within one year from the end of the financial year in which the application was allowed to proceed.

This wording is not an unconditional promise that an APA will be signed within one year. Distinguish this processing provision from the later closure rules.

Bilateral and multilateral cases involve competent authorities

The application is assigned to a team for enquiry and a draft report, and the Rule 122 procedure is invoked for the bilateral or multilateral request.

The designated authority and applicant prepare a mutually agreed draft. The Board enters the agreement after Central Government approval; discussions alone do not create the final agreement.

Three-year closure for the specified non-cooperation

Where no agreement has been entered within three years from the end of the financial year of the Rule 108 application, the Board may direct closure if the specified relevant material was not provided or directions about meetings, visits or enquiries were not complied with.

A reasonable hearing must precede that direction. This is not automatic closure of every application merely because three years have elapsed.

Special closure rule for unilateral IT-services applications

Where the primary covered transaction is the specified IT-services category, the proceedings are treated as closed if no agreement is entered within two years from the end of the application quarter.

The assessee may request an additional six months, and the rule states the limit is then extended by six months. Track this distinct quarter-end clock and any request rather than using the general financial-year clock.

Closure does not refund the application fee

Sub-rule (15) states that the Rule 106 fee is not refunded when proceedings are closed. Keep the closure provision separate from Rule 108’s preliminary-defect refusal outcome.

Maintain a deadline and response log throughout the process so the business can decide promptly on required evidence and any available extension request.

Key takeaways

Cooperation is substantive

Meetings, documents and enquiries form part of processing.

No guaranteed one-year signing

The unilateral processing wording is expressly qualified.

Different closure clocks

General non-cooperation and specified IT cases use different tests.

No fee refund on closure

The express closure consequence applies.

Practical checklist

  • Keep complete enquiry and response records.
  • Track the correct financial-year or quarter-end clock.
  • Document any six-month request in the specified IT case.

Avoid

  • Do not treat negotiations as an approved agreement.
  • Do not confuse the distinct closure and refund provisions.

FAQs

Must every unilateral APA be signed within one year?

The rule says the proceedings may, where possible, be completed within the stated period; it is not an unconditional signing guarantee.

Does every application automatically close after three years?

The general provision requires the stated absence of agreement and specified non-cooperation grounds, with a hearing before the Board’s direction.

Can the special IT-services period be extended?

Sub-rule (14) allows the assessee to request an additional six months and provides for that extension.

Is the application fee refunded on closure under this rule?

No. Sub-rule (15) says it shall not be refunded.

Glossary

Proposed draft agreement
The mutually agreed draft prepared through the procedure before final approval and entry into the agreement.

Official sources