BFSI groups frequently establish captive financing vehicles to provide intra-group funding. These arrangements are subject to transfer pricing rules under the Direct Tax Code (DTC) 2025. The safe harbour rules provide specific guidance on intra-group loans, with prescribed interest rate spreads linked to credit ratings. This guide analyses the intra-group loan safe harbour rules for BFSI captive financing vehicles.
The Intra-Group Loan Safe Harbour Framework
Section 167 — Statutory Basis
Section 167(1) provides that the determination of income referred to in section 9(2) or arm's length price under section 165 or 166 shall be subject to safe harbour rules. Section 167(2) empowers the Board to make rules for safe harbour.
Section 167(3) — Definition of Safe Harbour
Section 167(3) defines "safe harbour" as circumstances in which the income-tax authorities shall accept the transfer price or income declared by the assessee.
Safe Harbour for Intra-Group Loans
Rule 88 — Eligible International Transactions
Rule 88 specifies that advancing of intra-group loans is an eligible international transaction for safe harbour.
Rule 89(2) — Safe Harbour Interest Rates
INR Loans
The interest rate declared must be not less than the one-year marginal cost of funds lending rate (MCLR) of State Bank of India as on 1st April of the relevant tax year plus:
| Credit Rating | Basis Points |
|---|---|
| AAA to A | 175 basis points |
| BBB-, BBB or BBB+ | 325 basis points |
| BB to B | 475 basis points |
| C to D | 625 basis points |
| Credit rating not available (amount ≤ ₹100 crore) | 425 basis points |
Foreign Currency Loans
The interest rate must be not less than the reference rate of the relevant foreign currency plus:
| Reference Rate | Basis Points |
|---|---|
| US Dollar (6-month Term SOFR + 45 bps) | As per credit rating tier |
| Euro (6-month EURIBOR) | As per credit rating tier |
| UK Pound Sterling (6-month Term SONIA + 30 bps) | As per credit rating tier |
| Japanese Yen (6-month TORF + 10 bps) | As per credit rating tier |
| Australian Dollar (6-month BBSW) | As per credit rating tier |
| Singapore Dollar (6-month SORA + 45 bps) | As per credit rating tier |
Foreign Currency Loan Tiers
Tier 1 — Amount ≤ ₹250 Crore Equivalent
| Credit Rating | Basis Points |
|---|---|
| AAA to A- | 150 basis points |
| BBB+, BBB, BBB- | 300 basis points |
| BB+, BB, BB-, B+, B, B-, C+, C, C-, D or not available | 400 basis points |
Tier 2 — Amount > ₹250 Crore Equivalent
| Credit Rating | Basis Points |
|---|---|
| AAA to A- | 150 basis points |
| BBB+, BBB, BBB- | 300 basis points |
| BB+, BB, BB-, B+, B, B- | 450 basis points |
| C+, C, C-, D or not available | 600 basis points |
Credit Rating Definition
Rule 86(b) defines "credit rating" as the credit rating assigned to the associated enterprise by a SEBI registered and RBI accredited credit rating agency, which is applicable for the relevant tax year. Where the associated enterprise has more than one credit rating, the least of such ratings shall be taken as its credit rating.
Eligibility Conditions
1. Eligible Assessee
The eligible assessee includes a person who has made any intra-group loan.
2. Loan Definition
"Intra-group loan" means a loan advanced to an associated enterprise being a non-resident, where the loan:
- Is not advanced by an enterprise, being a financial company including a bank or a financial institution or an enterprise engaged in lending or borrowing in the normal course of business
- Does not include credit line or any other loan facility which has no fixed term for repayment
3. Captive Financing Vehicle
For BFSI captive financing vehicles, the loan must be advanced to a non-resident associated enterprise.
4. No Tax or Low Tax Country Exclusion
The safe harbour rules shall not apply in respect of eligible international transactions entered into with an associated enterprise located in any country or territory notified under Section 176, or in a no tax or low tax country or territory.
Procedure for Safe Harbour
Rule 90 — General Procedure
- Form No. 49: The assessee shall furnish Form No. 49 to the Assessing Officer on or before the due date for furnishing the return of income
- Return of Income: The return of income for the relevant tax year is to be furnished on or before the date of furnishing of Form No. 49
- Verification: The Assessing Officer shall verify whether the assessee is an eligible assessee and the transaction is an eligible international transaction
- Reference to Transfer Pricing Officer: If the Assessing Officer doubts the validity of the option, he shall make a reference to the Transfer Pricing Officer
- Order: The Transfer Pricing Officer shall, by order in writing, declare the option to be invalid or valid
Documentation Requirements
Section 171 — Documentation
Every person who has entered into an international transaction shall keep and maintain prescribed information and documents:
- Description of the ownership structure
- Profile of the multinational group
- Description of the business and industry
- Nature and terms of the international transaction
- Credit rating of the associated enterprise
- Interest rate computation
Practical Compliance
1. Assess Eligibility
- Determine whether the captive financing vehicle qualifies as an eligible assessee
- Determine whether the loan qualifies as an intra-group loan
- Determine whether the associated enterprise is in a no tax or low tax country
2. Determine Credit Rating
- Obtain credit rating from a SEBI registered and RBI accredited credit rating agency
- If more than one rating, take the least of such ratings
3. Calculate Interest Rate
- For INR loans: SBI one-year MCLR + applicable basis points
- For foreign currency loans: Reference rate + applicable basis points
4. Exercise Option
- File Form No. 49 on or before the due date for furnishing the return of income
- Ensure the return of income is furnished on or before the date of filing Form No. 49
5. Maintain Documentation
- Maintain documentation as required under Section 171
- Retain documentation for nine years
Consequences of Non-Compliance
Invalid Option
If the option is declared invalid, the transfer price will be determined under the regular transfer pricing provisions.
Penalties
Non-compliance may result in:
- Penalty under Section 442 for failure to maintain documentation
- Penalty under Section 457 for failure to furnish information
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on intra-group loan safe harbour for BFSI captive financing vehicles. Our direct tax experts help BFSI groups understand the safe harbour conditions, exercise options, and navigate the regulatory framework. We assist in eligibility assessment, Form 49 filing, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on intra-group loan safe harbour or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex intra-group loan safe harbour framework for BFSI captive financing vehicles requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Eligibility Assessment: Evaluation of safe harbour eligibility
- Option Exercise: Assistance with Form No. 49 filing
- Documentation: Assistance with transfer pricing documentation
- Representation: Representation before Transfer Pricing Officers
Contact us for expert legal guidance on your intra-group loan matters.