Safe Harbour Rules notified by the CBDT, for FY 2019-20 the previous rates to apply
Since its introduction in 2013, the Safe Harbour Rules have provided a window for taxpayers, wherein the income-tax authorities shall accept the transfer price under eligible circumstances. The previous measures, as updated in 2017, can be viewed here. However, the Safe Harbour Provisions were prescribed1 only till the financial year ending up to March 2019. Most MNCs were eagerly waiting for a clarification in this regard, especially for the FY 2019-20 before they close their financial statements. In this regards, the Central Board of Direct Taxes (CBDT) has issued a notification recently2, the key terms of this notification are:
- Former Safe Harbour Rates will continue to apply for the FY 2019-20
- The application to be made in Form 3CEFA for the FY 2019-20 would be for 1 year only
A summary of the former Safe Harbour Rates that would be applicable for the FY 2019-20 are:
| Eligible transaction |
Safe Harbour Rates pursuant to the notification issued on 7 June 2017 |
| Provision of software development services or Information Technology (IT) enabled services |
17% operating margins if the annual transaction value does not exceed INR 1 billion (approximately USD 13 million)
18% operating margins if the transaction value is between INR 1 to
INR 2 billion (approximately USD 13 million to USD 26 million)
|
| Provision of Knowledge Process Outsourcing (KPO) services |
For annual transaction value that does not exceed INR 2 billion (approximately USD 26 million) operating margins of:
- 24% where employee cost is at least 60% of operating expense; or
- 21% where employee cost is at least 40% but less than 60% of operating expense; or
- 18% where employee cost is less than 40% of operating expense.
Employee cost has been defined to include all costs that are generally grouped under the head employee cost in the profit and loss account, and it also includes outsourcing expenses to the extent of employee cost are on actuals or 80% of total expenses, if bifurcation into employee cost and other outsourcing cost is not available
|
| Providing corporate guarantee |
Irrespective of the guaranteed amount, the Safe Harbour Rate has been reduced to 1% per annum of the amount guaranteed.
|
| Provision of contract Research and Development (R&D) services (relating to software development or generic pharmaceutical drugs) |
24% operating margin if the annual transaction value does not exceed INR 2 billion (approximately USD 26 million).
|
| Manufacture and export of auto components |
For core auto components - 12% operating margin;
For non-core auto components - 8.5% operating margin
|
| Advancing of intra-group loans (for loans denominated in INR and foreign currency) |
| CRISIL Credit rating or the equivalent of the AE |
Loan in INR – SBI base rate plus BPS |
Loan in foreign currency – LIBOR plus BPS |
| AAA to A |
175 |
150 |
| BBB-, BBB or BBB+ |
325 |
300 |
| BB to B |
475 |
450 |
| C to D |
625 |
600 |
| Not available and the amount of loan advanced to all AE’s does not exceed INR 1 billion as on 31 March of the previous year. |
425 |
400 |
|
| Receipt of low value adding intra-group services |
The value of the transaction, including a markup not exceeding 5%, does not exceed a sum of INR 100 million. (approximately USD 1.3 million). |
1. Pursuant to sub-rule 3A of Rule 10TD of the Income Tax Rules 1962
2. Notification No. 25/2020 for Rule 10TD and 10TE
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