On March 25, 2025, the Central Board of Direct Taxes (CBDT) introduced significant amendments to the Income Tax Rules, 1962, by expanding the scope of the Safe Harbor Rules (SHR). These changes, issued via Notification No. 21/2025, aim to offer greater tax certainty and simplify compliance for eligible taxpayers, particularly multinational enterprises (MNEs).
The threshold for availing the Safe Harbor mechanism has been raised from INR 200 crores to INR 300 crores. This enhancement broadens the applicability of SHR to more companies engaged in eligible international transactions such as:
The scope of the SHR has now been extended to include Assessment Years up to AY 2026-27. This means it is now applicable for financial years 2024-25 and 2025-26 as well, giving taxpayers more predictability over the near term.
One of the notable expansions includes the addition of entities engaged in the manufacture of lithium-ion batteries for electric and hybrid vehicles. These are now recognized under the "core auto components" category, with a prescribed safe harbor mark-up of 12%. This move aligns with India's broader push towards e-mobility and green energy.
These changes are expected to promote foreign investment by offering a more stable tax regime, particularly for businesses entering or expanding in the electric vehicle (EV) ecosystem. By providing clearer guidelines, the government aims to reduce litigation related to transfer pricing.
The notification has also explicitly clarified that SHR provisions will apply separately for each assessment year, aiding in better tax planning.
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