The Central Board of Direct Taxes (CBDT) has notified amendments to the Income-Tax Rules, 1962, expanding the scope of safe harbour rules to support electric vehicle (EV) and EV battery makers in India.
Key Amendments:
- Increased Safe Harbour Threshold: Raised from ₹200 crore to ₹300 crore, allowing more businesses to benefit.
- Inclusion of Lithium-Ion Batteries: Now classified as core auto components, making them eligible for tax benefits.
- Transfer Pricing Benefits: Ensures tax certainty for companies engaged in import/export of cars, batteries, and EVs by allowing pre-determined transfer pricing under Section 92C & 92CA of the I-T Act, 1961.
What is Safe Harbour in Taxation?
- Technically, a safe harbour is generally defined as circumstances in which the tax authority shall accept the transfer price declared by the taxpayer to be at arm’s length. It usually benefits the assesses and businesses during imports of cars, batteries, and EVs.
- Transfer pricing is the price that is paid for goods or services transferred from one unit of an organization to its other units situated in different countries
- Arm’s length pricing refers to the price at which transactions between related parties (like subsidiaries of the same company) are conducted, as if they were independent, unrelated parties, ensuring fair market value and preventing tax avoidance.
(Source: Mint)
