Safe Harbour Rules

 India introduced safe harbor rules for transfer pricing in 2013. Transfer pricing refers to the pricing of goods, services, or intangibles transferred between related parties, such as a parent company and its subsidiary. Safe harbor rules provide certainty and predictability to taxpayers and tax authorities by setting predetermined benchmarks or thresholds that are deemed to be arm's length prices. Under India's transfer pricing safe harbor rules, taxpayers can choose to apply safe harbor margins for certain specified transactions. The safe harbor margins are based on industry-specific parameters, such as operating profit margins, for certain types of transactions. These parameters are designed to provide a level of certainty for taxpayers and reduce the compliance burden for tax authorities. The safe harbor margins apply to various types of transactions, including: 

• Provision of software development services
• Provision of information technology-enabled services
• Provision of knowledge process outsourcing services
• Provision of contract research and development services
• Provision of corporate guarantee
• Advance pricing agreement

The Indian government periodically reviews and updates the safe harbor margins to ensure they remain relevant and effective.

It's important to note that safe harbor rules are optional, and taxpayers can choose not to apply them and instead follow the traditional transfer pricing methods. However, by following the safe harbor margins, taxpayers can avoid lengthy disputes with the tax authorities over transfer pricing issues.

 

The below table summarizes the safe harbor margin for a few important sectors as provided in Rule 10TD for AY 2024-25.

Sector	Value less than 500 Cr	Value more than 500 Cr	Other
Information Technology (IT)	20%	22%
ITES	20%	22%
KPO	25%	25%
Contract Research	30%	30%

  

Transaction	Loan less than 50Cr	Loan more than 50Cr	Other
Intra-group Loan	SBI PLR+150 basis	SBI PLR +300 basis
Corporate Guarantee	2%	1.75%