India Tax Administration extends applicability of transfer pricing safe harbor rules to financial year 2020-21

 A “safe harbor” is defined in the Indian Income Tax Law (ITL) as circumstances under which the tax authorities will accept the transfer price declared by the taxpayer. India’s Central Board of Direct Taxes (CBDT), the apex Indian tax administration body, first issued transfer pricing (TP) safe harbor rules (SHR) on 18 September 2013, applicable for five years from financial year (FY) 2012-13 to FY 2016-17. The CBDT through notification dated 7 June 2017 amended the SHR, which were applicable for three FYs from FY 2016-17 through FY 2018-19. For FY 2016-17, taxpayers had the option to elect the rule which was more beneficial. On 20 May 2020, the CBDT issued a notification amending the SHR to extend the applicability to FY 2019-20, without any modifications.

On 24 September 2021, the CBDT issued a new notification extending the applicability of SHR to FY 2020-21, without any further modifications. Taxpayers opting for SHR for FY 2020-21 would need to file the return of income for the year on or before the date of furnishing the prescribed Form 3CEFA for opting for the SHR. The due date for filing is 28 February 2022.

Further, the CBDT has yet to prescribe SHR for attribution of profits to a business connection or permanent establishment (PE) of a nonresident, which was introduced under Finance Act 2020.