Safe Harbour Rules for International Transactions — Complete Eligibility Guide

The safe harbour regime under the Income Tax Act, 2025 represents a significant shift in India's transfer pricing landscape, offering taxpayers a predictable and less burdensome alternative to traditional transfer pricing compliance. Section 167 of the Act empowers the Board to prescribe safe harbour rules, which provide predetermined margins and rates that, if met, result in mandatory acceptance of the declared transfer price without further scrutiny. Understanding the eligibility framework is essential for taxpayers considering this route.

What Are Safe Harbour Rules?

Safe harbour rules define circumstances in which income-tax authorities shall accept the transfer price or income declared by the assessee without undertaking detailed transfer pricing scrutiny. The framework is designed to provide certainty, reduce compliance costs, and minimise litigation by establishing clear, pre-determined benchmarks.

Eligibility Criteria

Eligible Assessee

An eligible assessee is a person who has exercised a valid option for application of safe harbour rules and:

1. Is engaged in providing information technology services consisting of software development services, information technology enabled services, knowledge process outsourcing services, or contract research and development services wholly or partly relating to software development, with insignificant risk, to a non-resident associated enterprise

2. Has made any intra-group loan

3. Has provided a corporate guarantee

4. Is engaged in providing contract research and development services wholly or partly relating to generic pharmaceutical drugs, with insignificant risk

5. Is engaged in the manufacture and export of core or non-core auto components where 90% or more of total turnover during the relevant tax year is in the nature of original equipment manufacturer sales

6. Is in receipt of low value-adding intra-group services from one or more members of its group

7. Has provided data centre services to a foreign company

Eligible International Transactions

The safe harbour regime applies to the following international transactions:

• Provision of information technology services
• Advancing of intra-group loans
• Provision of corporate guarantee
• Provision of contract research and development services relating to generic pharmaceutical drugs
• Manufacture and export of core or non-core auto components
• Receipt of low value-adding intra-group services
• Provision of data centre services

The "Insignificant Risk" Requirement

For IT services and pharma contract R&D, the assessee must demonstrate "insignificant risk." This is determined based on:

• The foreign principal performs most economically significant functions
• Capital, funds, and economically significant assets are provided by the foreign principal
• The assessee works under direct supervision of the foreign principal
• The assessee does not assume economically significant realised risks
• The assessee has no ownership right on any intangible generated

Prescribed Margins and Rates

Information Technology Services

• Operating profit margin: 15.5% where aggregate operating revenue does not exceed ₹2,000 crore

Intra-Group Loans (INR)

• Interest rate: 1-year MCLR + spread based on credit rating

Intra-Group Loans (Foreign Currency)

• Interest rate: Reference rate + spread based on credit rating

Corporate Guarantee

• Commission: 1% per annum on the amount guaranteed

Contract R&D (Generic Pharmaceuticals)

• Operating profit margin: 24% where aggregate operating revenue does not exceed ₹300 crore

Core Auto Components Manufacturing

• Operating profit margin: 12%

Non-Core Auto Components Manufacturing

• Operating profit margin: 8.5%

Data Centre Services

• Operating profit margin: 15%

Low Value-Adding Intra-Group Services

• Markup not exceeding 5%, aggregate amount not exceeding ₹10 crore

Option Exercise and Procedure

Form 49 Filing

The assessee must furnish Form No. 49 to the Assessing Officer on or before the due date for furnishing the return of income for the relevant tax year. The return of income must be furnished on or before the date of furnishing Form No. 49.

Verification

The Assessing Officer verifies whether the assessee is eligible and the transaction is eligible. If doubts arise, a reference is made to the Transfer Pricing Officer for determination of eligibility.

Validity Period

For IT services, the option once exercised validly continues for five consecutive tax years. The threshold of ₹2,000 crore is tested for the first of the five consecutive tax years.

Exclusions

Safe harbour rules do not apply to eligible international transactions entered into with an associated enterprise located in:

• Any country or territory notified under Section 176
• A no-tax or low-tax country or territory (maximum rate of income-tax less than 15%)

Expert Legal Guidance

Understanding the safe harbour eligibility framework is essential for taxpayers seeking transfer pricing certainty. Anuj Desai & Associates provides expert advisory services on safe harbour compliance, helping taxpayers assess eligibility, exercise options, and ensure compliance with all conditions. Our team assists with Form 49 filings, eligibility assessments, and representation before tax authorities.

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