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CBDT expands Safe Harbour Rules
Context
The Central Board of Direct Taxes (CBDT) has made important changes to India’s Income-Tax (I-T) Rules, 1962, to expand the scope of safe harbour rules. These changes, announced aim to provide tax benefits to electric vehicle (EV) and EV battery makers in India.
What Are Safe Harbour Rules?
- Safe harbour rules are defined under Section 92CB of the Income-tax Act, 1961 for the determination of arm’s length price under section 92C or section 92CA.
- Safe harbour means circumstances in which the income-tax authorities accept the transfer price as declared by the assessee.
- Transfer Price is the actual price charged in a transaction between related entities which are part of the same multi-national enterprises (MNE) group.
- Safe harbour rules help businesses by giving them tax certainty.
- They allow companies to determine the prices of their international transactions without disputes with tax authorities.
- If a company follows these rules, the tax department will accept their pricing without further questioning, reducing legal issues.
Key Changes in Safe Harbour Rules
- Higher Threshold for Safe Harbour: The limit for companies to qualify for safe harbour has been increased from Rs 200 crore to Rs 300 crore. This means more businesses can now benefit from tax certainty and avoid lengthy tax disputes.
- Inclusion of Lithium-Ion Batteries: Lithium-ion batteries used in electric or hybrid EVs are now considered core auto components. This helps battery manufacturers get tax benefits, encouraging investment in India’s EV industry.
- These amendments will be applicable for two assessment years: 2025-26 and 2026-27.
Who Benefits from These Changes?
- Large Companies: More businesses will be able to take advantage of safe harbour rules, reducing tax-related legal troubles.
- EV Industry: Battery manufacturers and EV makers get tax certainty, which will boost growth in the sector.
- Taxpayers: Companies involved in international transactions get clearer tax guidelines, making compliance easier and encouraging investment in India’s EV industry.
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