The Institute of Chartered Accountants of India (ICAI), through its International Taxation Committee, has released the “Handbook on Safe Harbour Rules” to provide comprehensive and practical guidance on the application of India’s Safe Harbour framework. The publication has been issued in July 2026.
The Handbook has been developed as an updated reference guide for Chartered Accountants, tax professionals, corporate entities and other stakeholders dealing with transfer pricing and cross-border transactions between associated enterprises. It explains the legal framework, procedural requirements, eligibility conditions and practical issues connected with the Safe Harbour Rules.
ICAI has highlighted that transfer pricing has emerged as a significant area of international taxation due to the increasing globalisation of businesses and the growing volume of cross-border transactions between associated enterprises. Ensuring that such transactions are undertaken at arm’s length remains essential for protecting the tax base while providing certainty to taxpayers.
Safe Harbour Rules provide eligible taxpayers with an option under which the transfer price declared by them is accepted by the tax administration, subject to fulfilment of the prescribed conditions. The framework is intended to reduce compliance costs, minimise transfer pricing disputes and facilitate ease of doing business.
The Handbook explains that the Safe Harbour provisions under Section 167 of the Income-tax Act, 2025 prescribe eligible international transactions and the circumstances—including specified margins, interest rates and guarantee fees—under which the declared transfer price may be accepted without a detailed determination of the Arm’s Length Price.
Under the new direct tax framework, Section 167 of the Income-tax Act, 2025 replaces Section 92CB of the Income-tax Act, 1961. The Safe Harbour regime has been operationalised through Rules 86 to 93 of the Income-tax Rules, 2026, replacing the erstwhile Rules 10TA to 10TG of the Income-tax Rules, 1962.
The publication provides a rule-wise analysis of the Safe Harbour framework, including:
- Rule 86: Definitions;
- Rule 87: Eligible assessees;
- Rule 88: Eligible international transactions;
- Rule 89: Applicable margins, interest rates and thresholds;
- Rules 90 and 91: Procedure for exercising the Safe Harbour option;
- Rule 92: Cases where Safe Harbour Rules do not apply; and
- Rule 93: Restrictions relating to the Mutual Agreement Procedure where the Safe Harbour option has been accepted.
The Handbook discusses eligibility under the Safe Harbour regime for specified categories of assessees, including entities providing software development, Information Technology Enabled Services, Knowledge Process Outsourcing and contract research and development services. It also covers intra-group loans, corporate guarantees, manufacture and export of core and non-core automobile components, receipt of low value-adding intra-group services and provision of data centre services to foreign companies.
ICAI has clarified through the Handbook that merely undertaking an eligible international transaction does not automatically entitle an assessee to Safe Harbour benefits. The assessee must validly exercise the option in the prescribed manner and satisfy the applicable substantive conditions, margins and procedural requirements.
The publication also provides detailed guidance on the “insignificant risk” test applicable to specified captive service providers. The assessment considers factors such as performance of economically significant functions, ownership of assets and intangibles, funding arrangements, supervision and control by the foreign principal, and the actual allocation and assumption of risks.
The Handbook explains key concepts relevant to Safe Harbour computations, including operating revenue, operating expense and operating profit margin. It prescribes the computation of the operating profit margin as the ratio of operating profit—being operating revenue in excess of operating expense—to operating expense, expressed as a percentage.
The publication contains dedicated chapters on exercising the Safe Harbour option, the special procedure applicable to IT services, circumstances where the Rules do not apply, interaction with the Mutual Agreement Procedure, transfer pricing documentation obligations, consequences of an invalid option or non-compliance with prescribed conditions, and practical case studies.
ICAI has stated that the Handbook is expected to serve as a valuable professional resource by enhancing understanding of the Safe Harbour Rules and supporting their effective application. The publication seeks to assist stakeholders in navigating the revised framework under the Income-tax Act, 2025 and Income-tax Rules, 2026 in a consistent and informed manner.
The Handbook can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/08/Handbook-on-Safe-Harbour-Rules.pdf
