Government notifies Safe Harbour Rules for AY 2020-21- No change in rates

The Central Board of Direct Taxes (CBDT) has vide notification no. 25/2020, dated 20th May 2020, notified changes to Rules 10TD and 10TE of Income Tax Rules relating to Safe Harbour Rules (SHR). It notified that the rates applicable from Assessment Year (AY) 2017-18 to 2019-20 will continue to apply for AY 2020-21.

The SHR are applied for the purpose of Transfer Pricing. Generally, safe harbour is defined as circumstances in which the tax authority shall accept the transfer price declared by the taxpayer to be at arm's length.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.

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. With the new notification, the CBDT notified changes to Rule 10TD and 10TE of the Income Tax Rules, 1962, relating to SHR that provide that rates applicable from assessment year (AY) 2017-18 to 2019-20 will continue to apply for AY 2020-21 as well.

In the past these were applicable for more than one year, but this time the government has decided to announce only for one year considering FY 2020-21 would be impacted by the Covid-19 disruptions on businesses and it seems reduced, revised rates would be announced for future years to match the sentiments of the industry.