- Why in news
- On 31 March 2026, the CBDT said it signed a record 219 Advance Pricing Agreements in FY 2025-26, taking the total since inception to 1,034. It also noted Finance Act 2026 changes to Safe Harbour Rules.
- What it is
- An Advance Pricing Agreement is an agreement between the tax authority and a taxpayer. It fixes in advance the pricing method and arm's length price for the taxpayer's international transactions with associated enterprises, for a set number of years. It reduces transfer pricing disputes. A bilateral APA also involves the treaty partner's tax authority.
- Cumulative total
- The total is 1,034 APAs: 750 unilateral and 284 bilateral.
- Period and benefit
- APAs fix the arm's length price of international transactions in advance for up to five years. BAPAs also protect against double taxation.
Don’t confuse with Unilateral vs bilateral APA: A unilateral APA is between the taxpayer and the Indian tax authority only. A bilateral APA also involves the treaty partner's authority and gives relief from double taxation.
Don’t confuse with APA vs Safe Harbour: An APA is a negotiated, taxpayer-specific agreement. Safe Harbour prescribes fixed margins for specified categories of transactions, as a faster and cheaper option.
Economy terms and data: 42 Prelims questions since 2013, rising in recent years; they test what a term or instrument means. In Mains, 12 news-triggered questions.
Why it matters
- Gives tax certainty and cuts transfer pricing litigation, helping ease of doing business.
- Bilateral APAs avoid double taxation and build confidence among foreign investors and treaty partners.
Problems
- APA negotiations, especially bilateral ones, are slow and depend on the treaty partner's cooperation.
Way forward
- Expand bilateral APAs with more treaty partners and speed up processing through automation.
No close past question yet.
No practice question for this one; the card may still help an answer. Why: APAs are a lasting tax-certainty tool. The news gives records and counts, but economy terms are tested on concept, so a question is unlikely.
Worth revising until Prelims 2027: most news questions come within two years of the event.