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Final safe harbour rules issued

26 Sep 2013

The Central Board of Direct Taxes (CBDT) issued Draft Safe Harbour Rules on 14 August 2013 inviting comments from various stakeholders. After considering comments received from interested parties, the CBDT has now issued final safe harbour rules on 18 September 2013. Taxand India summarises the safe harbour for various international transactions.

Eligible international transaction

Safe harbour margin

Software development services /  ITeS 

  • Where value of services during a tax year does not exceed INR 5,000 mn - Net cost plus mark-up (NCP) of 20% 
  • In other cases - NCP of 22%

KPO services

  • NCP of 25%

Advancing of intra-group loan to wholly owned subsidiaries (WOS) 

  • Where the value of loan advanced does not exceed INR 500 mn - Interest rate of base rate of State Bank of India (SBI) as on June 30 of FY plus 150 basis points
  • ​In other cases - Interest rate of base rate of State Bank of India (SBI) as on June 30 of FY plus 300 basis points

Providing corporate guarantee  to WOS 

  • Where amount guaranteed does not exceed INR 1,000 mn - 2% per annum on the amount guaranteed 
  • ​Where amount guaranteed exceeds INR 1,000 mn and credit rating of the AE is of adequate to highest safety - 1.75% per annum on the amount guaranteed 

Contract research and development (R&D) services wholly or partly relating to software development

  • NCP of 30%

Contract R&D services wholly or partly related to generic pharmaceutical drugs

  • NCP of 29%

Manufacture and export of auto components

  • Core auto components - NCP of 12%
  • Non-core auto components - NCP of 8.5%

Discover more: Final safe harbour rules issued

Your Taxand contact for further queries is:
Amod Khare
T. +91 22 3021 7045


Taxand's Take

The final rules reflect Indian Government’s commitment to provide tax certainty to multinationals operating in India. The same is evidenced by the fact that the safe harbour option has been provided for 5 years as compared to the 2 years proposed under the draft rules. Also, by eliminating the monetary threshold of INR 1,000 mn for software, ITeS and KPO, the Government has now covered even bigger players in the IT, ITeS and KPO industry in the safe harbour regime. 

The critical concern for taxpayers still remain the mark-ups for the IT, ITeS, KPO and contract R&D, which are on the higher side. It would be interesting to see in the coming months whether multinationals would be willing to pay a premium to buy peace in India.

Taxand's Take Author

Amod Khare