insights

Safe Harbour Rates

Categories of international Transactions (IT)	Safe harbour rates – old rules [as per sub Rule (2) of rule 10TD of Income-tax Rules, 1962] applicable from AY 2013-14 to AY 2017-18	Safe Harbour rates – revised rules [as per sub Rule (2A) of rule 10TD] applicable from AY 2017-18 to AY 2019-20
Provision of Software development services (IT services) and Information Technology Enabled services (ITeS), with insignificant risks.	Operating profit margin to operating expense (OP/OE) :- • ≥ 20% where the aggregate value of such transactions ≤ INR 5,000 mn • ≥ 22% where the aggregate value of such transactions > INR 5,000 mn	OP/OE :- • ≥ 17% where the aggregate value of such transactions ≤ INR 1,000 mn • ≥ 18% where the aggregate value of such transactions > INR 1,000 mn but ≤ INR 2,000 mn
Provision of KPO services, with insignificant risks	OP/OE ≥ 25%	The value of international transaction (IT) ≤ INR 2,000 mn and the OP/OE is – • ≥ 24% – if employee cost to operating expense is at least 60% • ≥ 21% – if employee cost to operating expense is 40% or more but less than 60% • ≥ 18% – if employee cost to operating expense is > 40%
Provision of Intra-group loan to Wholly Owned Subsidiary (WOS)	Interest rate equal to or greater than the base rate of State Bank of India (SBI) as on 30th June of the relevant previous year: • plus 150 basis points (BPS) where the amount of loan is ≤ INR 500 mn • plus 300 BPS where amount of loan is > INR 500 mn	The threshold of INR 500 mn has been removed. Different safe harbour rates have been prescribed for – A. Loan denominated in Indian Rupees (INR) Interest rate not less than marginal cost of funds lending rate of SBI plus: • 175 BPS, where CRISIL rating of AE is between AAA to A or equivalent • 325 BPS, where CRISIL rating of AE is BBB-, BBB or BBB+ or equivalent • 475 BPS, where CRISIL rating of AE is between BB to B or its equivalent • 625 BPS, where CRISIL rating of AE is between C to D or its equivalent • 425 BPS, where credit rating of AE is not available and the amount of loan advanced to the AE including loans to all AEs does not exceed INR 1,000 mn as on 31 March of the relevant PY B. Loan denominated in foreign currency Interest rate not less than 6 months LIBOR of relevant foreign currency plus: • 150 BPS, where CRISIL rating of AE is between AAA to A or equivalent • 300 BPS, where CRISIL rating of AE is BBB-, BBB or BBB+ or equivalent • 450 BPS, where CRISIL rating of AE is between BB to B or its equivalent • 600 BPS, where CRISIL rating of AE is between C to D or its equivalent • 400 BPS, where credit rating of AE is not available and the amount of loan advanced to the AE including loans to all AEs does not exceed a sum of INR 1,000 mn as on 31 March of the PY
Provision of Corporate guarantee to WOS	• where the amount guaranteed is ≤ INR 1,000 mn – Commission or fee of 2% or more per annum • where the amount guaranteed > INR 1,000 mn, and the credit rating of the borrower, by a Securities and Exchange Board of India (SEBI) registered agency is of the adequate to highest safety – Commission or fee of 1.75% or more per annum.	The differential rates of 2% and 1.75% have been moderated down to a standard rate of 1% irrespective of the amount guaranteed. However, the requirement for the credit rating of the borrower to be certified by a SEBI registered agency and such credit rating to be of adequate to highest safety still remains for amount guaranteed exceeding INR 1,000 mn.
Provision of specified contract research and development services (Contract R&D services), with insignificant risks, wholly or partly relating to software development	OP/OE ≥ 30%	OP/OE ≥ 24% where value of IT ≤ INR 2,000 mn
Provision of contract R&D services, with insignificant risks, wholly or partly relating to generic pharmaceutical drugs	OP/OE ≥ 29%	OP/OE ≥ 24% where value of IT ≤ INR 2,000 mn
Manufacture and export of: • core auto components • non-core auto components where 90% or more of total turnover relates to Original Equipment Manufacturer sales.	OP/OE : • ≥ 12% for Core auto components • ≥ 8.5% for Non-core auto components	OP/OE : • ≥ 12% for Core auto components • ≥ 8.5% for Non-core auto components
Receipt of low value-adding intragroup services.		• Aggregate value of such transactions (including a mark-up not exceeding 5%), does not exceed INR 100 mn. • Method of cost pooling, exclusion of shareholder costs and duplicate costs from cost pool and the reasonableness of the allocation keys used for allocation of costs to be certified by an accountant.