Safe harbour rules extended for AY 2021-22, rates unchanged

Our Bureau New Delhi | Updated on September 25, 2021

The amended rules will be deemed to come into force from April 1, 2021

The Central Board of Direct Taxes (CBDT) has extended the applicability of Safe Harbour Rules (SHR) to Assessment Year 2021-22 (Fiscal Year 2020-21).

Introduced by the CBDT in 2009, safe harbour refers to the circumstances under which income-tax authorities will accept the transfer price declared by the assessee without any question or scrutiny. It aims to provide a certain degree of certainty to taxpayers.

The notification dated September 24, extended applicability of SHR by saying sub-rules (1) and (2A) will now apply to AY 2021-22 also (applicable from AY 2017-18 to 2019-20 and extended to AY 2020-21 by earlier notification). The amended rules will be deemed to come into force from April 1, 2021. “It is hereby certified that no person is being adversely affected by giving retrospective effect to these rules,” the notification said.

Nitin Narang, Partner (Transfer Pricing) with Nangia & Co LLP, said that as per the notification, the rates under SHR applicable from FY 2016-17 to FY 2018-19, and later extended to FY 2019-20, will continue to apply for FY 2020-21 as well. “Like last year, this year again, the rates have been prescribed for only one year only, instead of 3 years and 5 years period earlier,” he said.

Different rates

Different rates have been prescribed for different category of international transactions. For example, in case of international transaction related with software development services, operating profit margin will not be less than 17 per cent, in case size of transaction is ₹100 crore. If size of transaction is more than ₹100 crore but less than ₹200 crore, then operating margin will not be less than 18 per cent.

Narang feels that SHR should be mutually beneficial for both taxpayers and tax authorities. For taxpayers, in terms of reduced compliance burden, cost saving, administrative convenience and resources channelised in other business area, and for tax authorities, in terms of reduced time for review and litigation, agreed margins with computation mechanism and taxes thereon.

“Given that businesses are amidst an unprecedented economic situation and the past year have been severely impacted due to the pandemic, any lowering of the rates in line with the current economic circumstances would have gone a long way to make SHR more attractive and lowering of threshold, or adding more transactions, may add more willing taxpayers. Being an alternative dispute resolution mechanism, SHR should have been made more attractive and exhaustive rather than just been extended, to give more impetus,” he said.

Published on September 25, 2021

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