Transfer Pricing Alert: CBDT Amends scope of Safe Harbour Rules
Following the recent budget announcement where the Finance Minister proposed to widen the scope of safe harbour (SH) rules for reducing litigation and providing certainty in international transactions (thereby promoting ease of doing business for multinational groups), Central Board of Direct Taxes (CBDT), vide its notification has introduced certain key amendments in the safe harbour provisions.
We, at BDO in India, have analysed and summarised the key amendments hereunder:
Summary of key changes in safe harbour provisions:
| Provisions | Old SH Rule | New SH Rule |
| Rule 10TA Definition of core auto components has been expanded |
(iv) lithium-ion batteries for use in electric or hybrid electric vehicles | |
| Rule 10TD Threshold for SH rates has been modified (sub-rule 2A) |
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| 18% mark-up for provision of software development service | Where value of international transaction is between INR 100 crore and INR 200 crore | Where value of international transaction is between INR 100 crore and INR 300 crore |
| 18% mark-up for provision of information technology-enabled services | Where value of international transaction is between INR 100 crore and INR 200 crore | Where value of international transaction is between INR 100 crore and INR 300 crore |
| Eligible mark-up rates for provision of knowledge process outsourcing services | Where value of international transaction is less than INR 200 crores | Where value of international transaction is less than INR 300 crores |
| 24% mark-up for provision of contract research and development services relating to software development | Where the value of international transaction is less than INR 200 crore | Where the value of international transaction is less than INR 300 crore |
| 24% mark-up for provision of contract research and development services relating to generic pharmaceutical drugs | Where the value of international transaction is less than INR 200 crore | Where the value of international transaction is less than INR 300 crore |
| Rule 10TD SH period extended by two years (sub-rule 3B) |
The provisions of sub-rules (1) and (2A) shall apply for the assessment years 2020-21, 2021-22, 2022-23, 2023-24 and 2024-25 | The provisions of sub-rules (1) and (2A) shall apply for the assessment years 2020-21, 2021-22, 2022-23, 2023-24, 2024-25, 2025-26 and 2026-27 |
BDO India comments:
- By expanding the definition of manufacturing and export of core auto components to include lithium-ion batteries for use in electric or hybrid electric vehicles, the government aims to bring more tax certainty to this growing sector.
- Although the revision in the upper turnover threshold for certain eligible transactions may provide relief to an extended base of taxpayers, no revision in the safe harbour rates (including 17% mark-up for sub INR 100 crore captives) would continue to negatively impact the attractiveness of the safe harbour provisions within the multinationals group as they may be considered on the higher side under the BEPS era.
- Though the safe harbour provisions (with new amendments) have been extended by two assessment years, however, the conditions laid down under the proviso is to be considered for one assessment year. This may be linked with block assessment recently introduced for the Transfer Pricing assessment proceedings.
1Notification No. No. 21/2025 dated 25th March 2025