Understanding Safe Harbour Rules under Income Tax Bill 2025
Safe harbour rules allow eligible taxpayers to adopt standard margins in international transactions, avoiding prolonged transfer pricing audits. Clause 167 of the Income Tax Bill, 2025 now redefines how these rules operate, continuing the legacy of Section 92CB of the Income-tax Act, 1961 with added flexibility and clarity.
Let’s break it down for Indian consultants, tax professionals, and businesses operating across borders.
What Does Clause 167 of the 2025 Bill Say?
Clause 167 empowers the CBDT to prescribe safe harbour rules for specified classes of taxpayers and transactions. It aims to reduce litigation by offering pre-approved profit margins for cross-border dealings.
Here’s how it compares with the earlier law:
| Feature | Section 92CB (Old Act) | Clause 167 (New Bill) |
|---|---|---|
| Empowering Body | CBDT | CBDT |
| Applies to | Eligible taxpayers & transactions | Specified class of taxpayers & transactions |
| Purpose | Reduce TP litigation | Simplify compliance & offer certainty |
| Nature | Administrative relaxation | Legislatively reinforced mechanism |
| Flexibility | Based on income tax rules | Future-proof with wider powers to Board |
Why Safe Harbour Rules Matter
- ✅ Certainty in pricing: No dispute if you stay within prescribed margins.
- ✅ Less litigation: Avoid lengthy scrutiny by tax officers.
- ✅ Speedy assessments: Standardized margins simplify audits.
- ✅ Ease for MNCs: Especially useful for captive service units and BPOs.
What to Expect Going Forward
- New safe harbour rules likely after enactment of the 2025 Act
- Broader application for digital services and intra-group financing
- Simplified rules for smaller firms and emerging sectors