2 December 2024
Extension of Applicability of Safe Harbour Rules to AY 2024-25 and extension of timeline for filing Return of Income, Master File, and Safe Harbour
 
Extension of Applicability of Safe Harbour Rules to AY 2024-25

The Central Board of Direct Taxes (CBDT) vide Notification1 dated 29 November 2024 has extended the applicability of the Safe Harbour Rules under Rule 10TD of the Income-tax Rules, 1962 (the Rules) to Assessment Year (AY) 2024-25.

These rules may be called the Income-tax (Tenth Amendment) Rules, 2024 and shall be deemed to have come into force from 1 April 2024.

The CBDT has notified that sub-rule (1) and (2A) under Rule 10TD of the Rules will now apply to AY 2024-25 as well.

Safe Harbour provisions provide for circumstances in which certain transactions like IT/ITeS/KPO, contract R&D services, manufacture of automobile components, financial transactions such as loans and guarantees, and intra-group transactions viz receipt of low value-added intra-group services are covered. If a company opts for Safe Harbour provisions, subject to the fulfillment of certain conditions, the Indian tax authorities would automatically accept the transfer prices declared.

Vide this notification, CBDT has inserted a new Rule 10TI extending the provisions to a foreign company engaged in the business of diamond mining for selling raw diamonds in any notified special zone2.

For the purposes of applicability Safe Harbour provisions, the notification provides the following:

The taxable profits from the eligible business shall be at least 4% of the gross receipts.

Gross receipts are defined as the total amount related to the sale of raw diamonds3 by an eligible assessee, including amounts paid or payable to the eligible assessee (or on their behalf); and amounts received or deemed to be received by the eligible assessee (or on their behalf).

Subrule 3 of Rule 10TIA states that:
  • No additional deductions: Deductions under Sections 30 to 38 are deemed fully applied, and no further claims under these sections are permitted.
  • Depreciation adjustment: The written down value of assets is calculated assuming depreciation has been claimed and allowed for the relevant year.
  • No set-off for unabsorbed amounts: Unabsorbed depreciation (Section 32(2)) or carried forward business losses (Section 72(1)) cannot be set off.
  • No set-off across businesses or heads: Losses from other businesses (Section 70(1)) or other income heads (Sections 71(1) and 71(2)) cannot be set off against income from the eligible business.
Further, provisions of Sections 92D and 92E of the Act would continue to apply. Under Rule 10TIB, the eligible assessee has to file Form No. 3CEFC with the Assessing Officer before filing the Return of Income under section 139(1).

Rule 10TIC of the Rules states that the assessee opting for the Safe Harbour cannot invoke the Mutual Agreement Procedure (MAP) under a Double Taxation Avoidance Agreement (DTAA), unless the Safe Harbour option is declared invalid.

Extension of timeline for filing Return of Income, Master File, and Safe Harbour

The CBDT, through Circular No. 18/2024 dated 30 November 2024, has extended the due date for filing the Return of Income (ROI) under Section 139(1) of the Income-tax Act for assessees required to file Form No. 3CEB4. The deadline has been extended from 30 November 2024 to 15 December 2024.

While the circular specifically mentions the extension for ROI, it is important to note that due dates for the following compliance requirements, being linked to the ROI deadline, are likely extended to 15 December 2024:
  • Safe Harbour Provisions: As per Rule 10TE(1), the due date for Safe Harbour compliance5 aligns with the ROI deadline.
  • Master File Submission: As per Rule 10DA(2), the due date for submitting the Master File6 also aligns with the ROI deadline.
Our Comments
The CBDT's extension of Safe Harbour's applicability to foreign companies engaged in diamond mining in India is a commendable move. Additionally, extending the ROI deadline facilitates taxpayers in implementing the updated Safe Harbour provisions.

Form No. 3CEFA (application for opting Safe Harbour), mandated to be filed electronically as per Notification No. 01/2024 dated 26 February 2024, is yet to be enabled on the income tax portal. It is expected that Form No. 3CEFA, along with the newly introduced Form No. 3CEFC, will soon be made available, enabling eligible taxpayers to complete their filings before the ROI deadline. In the meantime, many taxpayers have already submitted physical filings, as accepted in previous years, and trust that these filings will remain valid.

On a broader note, certain activities and businesses, such as market support services and limited-risk distributors, remain excluded from the Safe Harbour provisions, leaving taxpayers in these sectors awaiting inclusion. In the July 2024 budget speech, the Finance Minister highlighted plans to broaden and rationalize Safe Harbour rules to enhance their appeal and provide greater tax certainty. While taxpayers await these developments, the anticipated reduction in Safe Harbour rates has been deferred for another year.
  1. Notification No. 124/2024/ F. No. 370142/13/2024-TPL
  2. For a foreign company engaged in the business of diamond mining, no income shall be deemed to accrue or arise in India from activities limited to the display of uncut and unassorted diamonds in any special zone specifically notified for this purpose by the Central Government in the Official Gazette.
  3. Uncut or unpolished; unassorted; unworked or simply sawn, cleaved, or bruted; not conflict diamonds as defined by the Kimberley Process; accompanied by Kimberley Process Certificate issued by the Kimberley Process Authority in the exporting country; and falling under Tariff Heading 7102 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).
  4. Explanation 2(aa) to Section 139(1)
  5. Explanation 2 to Section 139(1)
  6. Section 139(1)
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