Introduction: Quiet Reform, Major Relief
For multinational enterprises operating in India, transfer pricing has long been a double-edged sword. While India offers scale, skill, and strategic location, the risk of protracted tax litigation—especially over transfer pricing disputes—has often cast a shadow over business planning.
In this environment, the Safe Harbour Rules (SHR) under Indian tax law offer a clear path to certainty. But until recently, these rules were too narrow in scope—particularly for mid-to-large companies with higher transaction volumes.
That’s what makes the CBDT’s latest amendment on March 25, 2025, so relevant. With a simple substitution of numbers in the SHR thresholds—from ₹200 crore to ₹300 crore—the tax department has expanded the door for many more companies to enter the safe harbour regime.
Here’s what’s changed, why it matters, and how businesses should respond.
What Are Safe Harbour Rules and Why Are They Important?
Safe Harbour Rules, introduced under Section 92CB of the Income-tax Act, 1961, specify predefined margins for certain cross-border transactions. If a taxpayer adheres to these margins and other conditions, the pricing of the transaction is automatically accepted as arm’s length, and no further scrutiny by the Transfer Pricing Officer (TPO) is initiated.
For businesses, this means:
- Reduced compliance costs
- No lengthy litigation
- Greater certainty in financial forecasting
But until now, only those with international transactions up to ₹200 crore could avail this benefit across most categories—effectively excluding many medium-to-large taxpayers.
What Exactly Changed in the 2025 Amendment?
As per Notification No. 21/2025 dated March 25, 2025, the CBDT amended Rule 10TD(2A) of the Income-tax Rules, 1962. Specifically, the threshold for eligible international transactions has been raised from ₹200 crore to ₹300 crore under the following categories:
- Software development services
- Information technology enabled services (ITES)
- Knowledge process outsourcing (KPO) services
- Contract R&D services relating to software development (Sl. No. 7)
- Contract R&D services relating to generic pharmaceutical drugs (Sl. No. 8)
No changes were made to the prescribed margins. Only the monetary threshold was revised.
This means that taxpayers with eligible international transactions in these service categories up to ₹300 crore in value can now opt into the safe harbour regime—an expansion that makes the framework far more inclusive.
Why This Matters: Decoding the Policy Signal
1. More Businesses Can Now Access Certainty
This is a deliberate recalibration. By expanding the limit to ₹300 crore, the CBDT acknowledges that many Indian service providers in tech, pharma, and R&D sectors routinely exceed ₹200 crore in cross-border transactions but still operate with lean structures and require tax predictability.
This update broadens eligibility without diluting the framework, offering mid-market players the same certainty once reserved only for smaller entities.
2. A Step Towards Litigation Reduction
Transfer pricing disputes are among the largest sources of tax litigation in India. Safe harbour provisions, if designed well, can reduce that burden significantly. With higher thresholds, more taxpayers will choose to opt in—especially those wary of the prolonged and resource-intensive appellate process.
3. Keeping India Competitive as a Global Services Hub
Countries like Singapore and Ireland have long offered streamlined, low-risk tax environments to attract global service delivery operations. India, by widening its safe harbour net, is signaling that it wants to compete not just on talent and cost—but on tax stability as well.
This matters greatly for sectors like IT services, pharma R&D, and KPO—where India is a global leader.
What Should Businesses Do Now?
With this threshold revision, eligible businesses should immediately:
- Re-assess current TP positions and transaction volumes.
- Determine whether international transactions for AY 2025–26 and 2026–27 now fall within the new ₹300 crore limit.
- Evaluate the cost-benefit of opting into the safe harbour regime versus traditional benchmarking or APAs.
- Ensure documentation and compliance are aligned with Rule 10D and Rule 10TD requirements to avoid technical disqualification.
Conclusion: From Policy Refinement to Practical Advantage
The CBDT’s decision to raise the safe harbour threshold is a targeted yet powerful move—one that shows sensitivity to evolving business realities, especially in high-growth, high-export sectors like tech and pharma.
It doesn’t overhaul the system, nor does it attempt to fix all the limitations of the safe harbour regime. But by raising the ceiling, it sends a clear signal of intent: that India wants to encourage responsible tax compliance while reducing administrative friction.
For businesses operating in this ₹200–₹300 crore sweet spot, the message is clear: You now have an easier path to transfer pricing certainty—use it wisely.
