Finance Bill 2026: APA Amendment Allows Associated Enterprises to File Returns

Clause 45 of the Finance Bill, 2026 proposes an amendment to section 169 of the Income-tax Act, 2025, which deals with giving effect to Advance Pricing Agreements (APAs). The amendment removes a procedural limitation in the existing law by expressly permitting associated enterprises (AEs), whose income is modified as a consequence of an APA—to file a return or modified return.

The amendment is prospective, effective from 1 April 2026, and applies to tax year 2026-27 and subsequent years.

Existing Legal Position under Section 169

Filing Obligation Prior to Amendment

Under the existing section 169(1):

• If a return for a tax year covered by an APA had already been furnished before the APA was entered into,
• the person who entered into the APA was required to file a modified return,
• within three months from the end of the month in which the APA was entered into,
• notwithstanding section 263, and
• limited strictly to the terms of the APA.

Gap in the Existing Framework

The provision was limited to the APA signatory and did not recognise the position of associated enterprises, even where:

• the APA resulted in corresponding income adjustments in the hands of such associated enterprises, and
• taxes had already been paid or withheld by them on the pre-APA income.

As a result, there was no statutory mechanism for such associated enterprises to:

• file a return or modified return, or
• claim a refund of excess tax paid or withheld.

What Clause 45 of Finance Bill 2026 Changes

Substitution of Section 169(1)

Clause 45 substitutes section 169(1) to provide that:

• Where income is modified as a result of an APA entered into with any person,
  • such person shall, or
  • any other person, being an associated enterprise, may,
• furnish a return or a modified return, as applicable,
• in accordance with and limited to the APA,
• within three months from the end of the month in which the APA is entered into,
• in respect of tax years covered by the APA.

Key Legal Clarifications from the Amendment

1. Distinction Between “Shall” and “May”

• The APA signatory continues to have a mandatory obligation (“shall”) to file a return or modified return where required.
• The associated enterprise is given a discretionary right (“may”), not an obligation.

This ensures procedural relief without imposing unintended compliance burdens on AEs.

2. Scope Strictly Confined to APA Effects

Any return or modified return filed under section 169 must be:

• strictly in accordance with, and
• limited to, the terms of the APA.

The amendment does not permit reopening or revision of unrelated issues.

3. Uniform Time Limit Retained

The existing time limit remains unchanged:

• three months from the end of the month in which the APA is entered into.

There is no extension or relaxation of timelines.

4. Prospective Application Only

As clarified in the explanatory notes, the amendment applies:

• where the APA is entered into on or after 1 April 2026, and
• in respect of tax years beginning from 1 April 2026 onwards.

The amendment does not retrospectively apply to earlier APAs or earlier tax years.

Practical Implications

For Multinational Groups

• Enables symmetrical tax treatment across associated enterprises
• Allows AEs to claim refunds where income is reduced pursuant to an APA
• Eliminates reliance on administrative workarounds or litigation

For Tax Administration

• Ensures full and consistent implementation of APAs
• Reduces disputes arising from inability of AEs to give effect to APA outcomes
• Aligns the APA framework with commercial and transfer pricing realities

Summary of the Amendment

Clause 45: Key Points

What the Amendment Does and Does Not Do

What It Does

• ✔ Enables associated enterprises to give effect to APA outcomes
• ✔ Facilitates refunds and accurate tax computation
• ✔ Strengthens procedural completeness of the APA regime

What It Does Not Do

• ❌ Does not apply to APAs entered before 1 April 2026
• ❌ Does not permit revision beyond APA-related issues
• ❌ Does not override other limitation or compliance provisions

Effective Date

✔ 1 April 2026
✔ Applicable for tax year 2026-27 and subsequent years

Conclusion

Clause 45 of the Finance Bill, 2026 makes a targeted and corrective change to the APA framework by recognising that associated enterprises may also be directly impacted by income modifications arising from an APA. By granting them a statutory right to file returns or modified returns, the amendment ensures that APAs achieve their intended economic effect without procedural gaps.

The change enhances certainty, equity, and administrative efficiency, while preserving the disciplined and limited scope of the APA mechanism.

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Finance Bill, 2026: Union Budget 2026-27