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  • Home
  • About Us
    • Why Choose Us
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  • Our Services
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Updates on Safe Harbor Rules

Latest Updates on Safe Harbor Rules in India

The Central Board of Direct Taxes (CBDT) yesterday released certain amendments in the Income Tax Rules, 1962 by expanding the scope of Safe Harbor Rules (SHR) vide Notification no. 21/2025.

Key highlights include:

  1. Revised Thresholds: The threshold for availing Safe Harbor has been updated from INR 200 crores to INR 300 crores, offering enhanced coverage and opportunity for MNE’s to adopt the Safe Harbor Rules. This revision is applicable for eligible transactions viz., provision of software development services, information technology & related services, knowledge process out-sourcing services and provision of contract R&D services and for generic pharmaceutical drugs.
  2. Extended Safe Harbor Period: The assessment years covered under SHR have been extended up to AY 2026-27 i.e. the scope has been extended for FY 2024-25 and FY 2025-26.
  3. Expanded Applicability: These rules now apply to entities engaged in the manufacture of lithium-ion batteries for use in electric/hybrid-electric vehicles. Core auto components therefore now includes lithium-ion batteries used in electric and hybrid vehicles and the targeted mark-up is 12%.
  4. Fostering Investments & Ease of compliance : The updated Safe Harbor provisions aim to encourage foreign investments by ensuring tax certainty for entities planning to invest in the EV segment. This update in the Rules is expected to reduce transfer pricing disputes.
  5. Clarification: The notification has clarified that the safe harbour rule will apply for each AY separately.

Action points for taxpayers:

  1. Evaluate / Consider opting of SHR for applicable transactions in case the threshold falls within INR 300 crores;
  2. With the SHR made applicable for FY 2024-25, taxpayers can consider making true-up adjustments within the current financial year itself, before closure of books of accounts.
  3. MNE Groups engaged in manufacturing and export of lithium-ion batteries for use in electric/hybrid-electric vehicles, where 90% or more of the total turnover is to OEMs can evaluate opting for SHR.
  4. The visibility on applicability of SHR for FY 2025-26 would bring more ease to the taxpayers through aiding them in planning their working capital and managing their cash flows effectively.

In the budget speech the finance minister announced the expansion of SHR, which is now reflective through inclusion of Lithium ion battery as part of auto components. However, the rationalisation of the rates and inclusion of other litigated transactions were some of the expectations from the industry, which was not covered in the current notification. The amendment to SHR by the CBDT is a welcome move as it would encourage more taxpayers to opt for SHR.

Understanding Resale Price Method

CASC Article on “Understanding Resale Price Method”

VSTN has recently published an article “Understanding Resale Price Method” co-authored by Nithya Srinivasan and Saranya Nagarajan in the CASC Monthly Bulletin of March 2025.

The Resale Price Method (RPM), is one of the methods used to determine the arm’s length price of international transactions between related parties. This article delves into the key concepts of RPM and provides an insight on the following:

  • Importance of choosing the Most Appropriate Method
  • What, When and How of RPM
  • Instances where RPM can be applied
  • Comparability requirements under RPM
  • Key Economic circumstances to be considered while using RPM
  • Other Transactional Profits Method that could be used by a distributor
  • Interplay between RPM and Berry Ratio
  • Benefits & Limitations of using RPM
  • Legal jurisprudence on RPM – from India and International perspective

If you’re looking to understand RPM and its applications to evaluate pricing strategies effectively to ensure compliance with tax regulations, this article is for you.

Know More…

APA – UAE TP Law

FTA’s Policy on Issuing Clarifications and Directives – APA

The Federal Tax Authority (FTA) on 19 February 2025 has released a revised policy on issuing clarifications and directives vide Decision No. 2 of 2025 (“the Policy”) and is made effective from 1 March 2025. Among other things, the decision has pronounced the mechanism for issuing directives through Administrative exceptions, Input tax apportionment decisions and Advance pricing agreements (“APA”).

While Article 59 of Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses have specified about taxpayers seeking clarification in respect of an APA vide an application, the Policy states that applications for Unilateral APA shall be received from 4th quarter of 2025 onwards and it also states that the date of receiving other applications (i.e., Bilateral or Multilateral) shall be announced later.

Considering that UAE has recently implemented the Transfer pricing (TP) regulations, accepting APA applications during the initial years of implementing the TP law is a welcome move by FTA. It marks a significant step towards enhancing tax transparency and compliance for multinational enterprises operating in UAE and it would aid in fostering a cooperative relationship between the taxpayer and the FTA.

The Policy merely outlines the broad framework for issuing clarifications and directives, whereas the detailed process and procedures will be specified by FTA separately. Hence one has to await further clarity on the detailed procedures and guidelines relating to APA programme.

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  • CBDT Update FY 2024-25
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