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Income Tax Update/2021-22/06


Income Tax/2021-22/06                                                                                                                                                   28th September 2021

Central Board of Direct Taxes (CBDT), vide issue of Income Tax (30th Amendment) Rules, 2021 has notified Safe Harbour Rates for Assessment Year (AY) 2021-22. As per the notification, rates applicable from AY 2020-21 will continue to apply for AY 2021-22.

Introduced in 2009, Safe Harbour Rules (SHR) provides for circumstances in which a certain category of taxpayers can follow a simple set of rules and rates under which transfer prices that are aligned to such rules are automatically accepted by the revenue authorities. It aims to provide an element of certainty to taxpayers. A safe harbour regime, in particular, benefits taxpayers in the services sector by adopting a transfer pricing mark-up at the rate prescribed to avoid protracted litigation.

Post 2009, first round of SHR provisions were introduced in August 2013 for a period of 3 years, followed by revision in 2017 in the SHR which were applicable till Financial Year (FY) 2019.

It shall be noted that usually SHR have been notified for more than one year, normally for three years at a stretch. However, considering the impact of COVID-19 on businesses, the government has decided to announce it for one year at a time for AY 2020-21 as well as AY 2021-22. We expect the government to rationalise the rate under SHR for FY 2021-22. This would go a long way in making this scheme more attractive for the taxpayers at large and provide tax certainty to business on the crucial aspect of transfer pricing.

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