Indian Transfer Pricing Update: CBDT Amends Safe Harbour Rules
Home > Indian Transfer Pricing Update: CBDT Amends Safe Harbour Rules
March 27, 2025
Key Changes in Safe Harbour Rules as per the CBDT Notification
Executive Summary
SBC TP Update on the CBDT Amendments to Safe Harbour Rules vide Notification No. 21/2025 dated March 25, 2025.
- The definition of core auto components under Rule 10TA has been expanded to encompass lithium-ion batteries for use in electric and hybrid electric vehicles.
- The threshold limits under Rule 10TD for software development services, IT-enabled services (ITeS), Knowledge Process Outsourcing (KPO), Contract R&D in software development, and Contract R&D in generic pharmaceutical drugs have been increased from ₹200 crores to ₹300 crores.
The aforementioned amendments shall be applicable for the assessment years 2025-26 and 2026-27.
Summary of changes pre and post amendment
| Before Amendment | After Amendment |
|---|---|
|
1. Definition of core auto components As per Rule 10TA, Clause (b) of the Income-tax Rules, 1962 (i) engine and engine parts, including piston and piston rings, engine valves and parts cooling systems and parts and power train components; (ii) transmission and steering parts, including gears, wheels, steering systems, axles and clutches; (iii) suspension and braking parts, including brake and brake assemblies, brake linings, shock absorbers and leaf springs; |
1. Definition of core auto components As per Rule 10TA, Clause (b) of the Income-tax Rules, 1962 (i) engine and engine parts, including piston and piston rings, engine valves and parts cooling systems and parts and power train components; (ii) transmission and steering parts, including gears, wheels, steering systems, axles and clutches; (iii) suspension and braking parts, including brake and brake assemblies, brake linings, shock absorbers and leaf springs; (iv) lithium-ion batteries for electric/hybrid vehicles. |
Changes in Threshold Limits
India’s Transfer Pricing Safe Harbour Regime: An Overview
Overview of the Indian Safe Harbour Regime
• The Indian Safe Harbour Regime was established in response to escalating instances of transfer pricing audits and disputes. Introduced under the Finance (No.2) Act of 2009, effective from April 1, 2009, this regime was introduced vide Section 92CB of the Income Tax Act, 1961.
• Under section 92CB, the determination of an arm’s length price, as defined by section 92C or Section 92CA, is required to adhere to safe harbour rules. These rules provide predefined acceptable ranges of profits or prices, enhancing certainty for transactions.
• To provide greater advantages to taxpayers, the Central Board of Direct Taxes (CBDT) broadened the scope of Safe Harbour Rules through Rule 10TD of the Income-tax Rules. This expansion aims to streamline compliance procedures, encourage timely approvals, and reduce complexities associated with transfer pricing.
• On March 25, 2025, CBDT issued a notification, extending the applicability of Safe Harbour Rules to the Assessment Year 2025-26 & 2026-27, which pertains to the Financial Year 2024-25 & FY 2025-26.
• The Indian Safe Harbour Regime offers a structured and predictable framework that promotes compliance, minimizes disputes, and fosters a more harmonious business environment, ultimately contributing to a more efficient and effective transfer pricing ecosystem.
Eligible Assessee
A person who has validly opted for safe harbour rules under Rule 10TE of the Income Tax Rules, 1962.
Eligible Transactions
These eligible transactions qualify for safe harbour treatment under Rule 10TB, providing a simplified and predictable transfer pricing framework.
The Rational Choice: Selecting the Safe Harbour Option
Advantages of Choosing the Safe Harbour Approach
| Advantages of Choosing the Safe Harbour Approach | |
|---|---|
|
Enhanced
Certainty |
By providing advance insight into the acceptable range of profits or prices that meet Safe Harbour
criteria, transactions gain a heightened level of certainty, offering stakeholders a clearer financial
landscape. |
|
Conflict
Mitigation |
Safe Harbour serves as an effective dispute avoidance mechanism, significantly curbing the potential
for conflicts between taxpayers and revenue authorities. This fosters a more harmonious business
environment, particularly significant given the high incidence of Indian Transfer Pricing litigation. |
|
Streamlined
Approvals &
Assessment |
Safe Harbour Rules offer a structured mechanism for application and approvals procedures, facilitating
a smoother and time-bound process. This stands in stark contrast to the prolonged timelines
associated with Domestic Litigation or Advance Pricing Agreements (APAs). |
|
Comparative
Compliance |
In contrast to the complexities involved in Advance Pricing Agreements (APAs) and the Domestic
Transfer Pricing Litigation Route, Safe Harbour Rules present a more favorable choice in terms of TP/ALP
rates/margins, timelines, and associated costs. This streamlined approach can alleviate compliance
burdens. |
|
Resource
Efficiency |
The adoption of Safe Harbour Rules translates into substantial savings in terms of time, costs, and
efforts, especially in potential litigation scenarios. This strategic choice can lead to optimized resource
allocation and more efficient business operations. |
|
Stakeholder
Confidence |
Safe Harbour instills confidence in taxpayers through its predictable framework, enhancing investor
confidence and fostering robust business growth. |
|
Safeguarding
Reputational
Capital |
Choosing the Safe Harbour route mitigates the risk of reputational damage that could arise from
contentious transfer pricing disputes. A clean record in compliance can enhance a company’s standing
within its Group and among stakeholders. |
|
Incentive for
Voluntary
Compliance |
The transparent and predictable nature of Safe Harbour can incentivize voluntary compliance, enabling
companies to proactively meet their transfer pricing obligations and contribute positively to the overall
tax ecosystem. |
Core Features of the Safe Harbour Rules in India
Safe Harbour Rules in India: Key Points for Taxpayers
For those seeking to opt for safe harbour rules for AY 2025-26 & 2026-27 and who have undertaken in eligible international transactions, adherence to specific guidelines is imperative. Here’s a concise breakdown of the crucial aspects:
| Key Points for Taxpayers | |
|---|---|
|
Filing Requirement |
Taxpayers opting for safe harbour need to file an income return and safe harbour
application (Form No 3CEFA) to the Assessing Officer, both before the stipulated
deadline i.e., 30 November 2025 for AY 2025-26 and 30 November 2026 for AY 2026-27. |
|
Compliance
Commitment |
Even if opting for safe harbour, taxpayers must fulfill the prescribed transfer pricing
documentation and maintain/Form 3CEB filing compliances (Rule 10TD(5) of the Rules). |
|
Geographical
Limitations |
Safe harbour doesn’t apply to transactions with Associated Enterprises/Related Parties
location in low or no tax countries. |
|
Mutual Agreement
Procedure (MAP) |
If approved, the transfer price by the tax authorities for an eligible international transaction
bars the assessee from invoking the Mutual Agreement Procedure in a double taxation
avoidance agreement with a foreign entity. |
|
Adjustment
Constraints |
When opting for safe harbour, comparability adjustments and prescribed variation/range
benefits (tolerance band) aren’t accessible (Rule 10TD(4) of the Rules). |
|
Duration of Choice |
The option exercised remains in effect for a period of one year. |
|
Transaction Scope |
Safe harbour applies solely to specified transactions, while TP scrutiny exposure remains
open to other transactions not eligible under safe harbour. |
|
Deemed Acceptance |
If the Assessing Officer, Transfer Pricing Officer, or the Commissioner, as the case may be,
does not make a reference or pass an order within the specified time, then the option for
safe harbor exercised by the assessee shall be treated as valid. |
|
Scope of definitions |
The scope of Operating Revenue and Operating Expense to be used in the computation of
the Operating Margin has been clearly defined in the Safe Harbour Rules. |
Safe Harbour Rates
Safe Harbour Procedure
How can SBC assist you?
Navigating the Safe Harbour Application process doesn’t have to be overwhelming. We’re here to provide discreet and effective assistance every step of the way.
SBC support:
• We provide assistance in filing Form No. 3CEFA (Safe Harbour Application), ensuring a smooth process.
• Our experts evaluate your eligibility for Safe Harbour Rules (SHR) by undertaking functional analysis and review of inter-company transactions and underlying agreements to guide your decision-making.
• We conduct a comprehensive cost-benefit analysis to help you assess your options effectively.
• If needed, we calculate year-end transfer pricing adjustments to align with safe harbour rates.
• Our support extends to year-end compliance, including Form No. 3CEB and transfer pricing documentation.
• We offer representation support before tax authorities (AO & TPO) for safe harbour proceedings.
For TP assistance, reach us at +91 9553111131 /+91 9491933365.
