CBDT Notified Amendments To The Income-Tax Rules: Safe Harbour Rule

The Central Board of Direct Taxes (CBDT) has recently notified amendments to the Income-tax Rules, increasing the threshold for availing safe harbour from ₹200 crore to ₹300 crore. This move aims to provide greater clarity and ease of compliance for businesses engaged in international transactions.

 

Understanding the Safe Harbour Rule
 

What is the Safe Harbour Rule?
 

1. A key provision in India’s transfer pricing framework, designed to reduce litigation by allowing eligible taxpayers to adopt predefined prices for certain international transactions.
2. It helps multinational enterprises (MNEs) and businesses by providing certainty and simplified compliance.
    

Legal Framework
 

1. Safe harbour provisions are defined under Section 92CB of the Income-tax Act, 1961.
2. These rules establish circumstances under which tax authorities will accept the transfer price declared by a taxpayer without detailed scrutiny.
    

Key Concepts in Transfer Pricing
 

1. Transfer Price: The actual price charged in a transaction between related entities that are part of the same multinational enterprise (MNE) group.
2. Arm’s Length Price
   1. The price that two independent, unrelated parties would agree upon in a transaction under open market conditions.
   2. Ensures that transactions between related entities do not lead to artificial profit shifting.