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India : Safe Harbour Rules Finalized after Considering Comments of Various Stake Holders ; Rules to be Applicable for 5 Assessment Years Beginning from Assessment Year 2013-14.

Section 92CB of the Income-tax Act provides for framing of safe harbour rules. The determination of arms length price u/s 92C or 92CA of the Act is subject to these safe harbour rules. The definition of safe harbour rule provided in section 92CB means circumstances in which the Income-tax Authority shall accept the transfer price declared by the assessee.

The draft safe harbour rules were placed in public domain along with Central Board of Direct Taxes (CBDT) Press Release on 14.08.2013 seeking comments of various stake holders. The comments received from various stake holders have been considered and necessary modifications have been made to the draft rules. The finalized safe harbour rules are being notified separately. The salient feature of the modifications incorporated in the final safe harbour rules are:-

(i) The safe harbour rules shall be applicable for 5 assessment years beginning from assessment year 2013-14.

(ii) An assessee can opt for the safe harbour regime for a period of his choice but not exceeding 5 assessment years. This option can be exercised by filing of Form 3CEFA which has been prescribed in the rules.

(iii) In case of transactions in the nature of routine ITES and ITS activities the earlier ceiling of Rs 100 crore has been removed. Transactions upto Rs. 500 crore have been provided safe harbour margin of 20% and transaction above Rs.500 crore have been provided safe harbour margin of 22% .Similarly, the ceiling of Rs. 100 crore provided for transactions in the nature of corporate guarantee has been removed. The Safe harbour would be available in case of transactions above Rs 100 crore only if the wholly owned subsidiary has been rated to be of adequate to highest safety by a rating agency registered with SEBI. The safe harbour margin for such transactions above Rs 100 crore has been reduced to 1.75% of the amount guaranteed.

(iv) The definition of Knowledge process outsourcing (KPO) has been rationalized to provide reasonable distinction from routine business process outsourcing activity. The safe harbour operating margin has been reduced from 30% to 25%. Further the ceiling in respect of KPO transactions has been removed.

(v) The safe harbour provisions would be available only if the assessee satisfies the eligibility conditions provided in the rules and in respect of such international transactions which are eligible for safe harbour as provided in the rules.

(vi) The rules provide for a time bound procedure for determination of the eligibility of the assessee and the international transactions. Any rejection of the option exercised by the assessee shall be by way of a reasoned order passed after hearing the assessee.

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Publication:Mena Report
Geographic Code:9INDI
Date:Sep 19, 2013
Words:455
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