The Central Board of Direct Taxes (CBDT) has amended the Income-Tax Rules, 1962, expanding the scope of safe harbour rules to provide tax benefits to electric vehicle (EV) and EV battery manufacturers in India. This move is expected to enhance ease of doing business, support India’s EV manufacturing push, and reduce tax uncertainties for industries engaged in international trade.
What are Safe Harbour Rules?
Safe harbour rules in transfer pricing ensure that the tax authorities accept the declared transfer price as being at arm’s length, reducing disputes. Under Sections 92C and 92CA of the Income-Tax Act, 1961, these rules provide tax certainty for businesses engaged in international transactions, particularly in sectors like EVs, automobiles, and batteries.
Key Amendments
- Increase in Safe Harbour Threshold: The threshold for availing safe harbour benefits has been raised from ₹200 crore to ₹300 crore.
- Inclusion of Lithium-Ion Batteries: Lithium-ion batteries used in electric and hybrid EVs have been categorized as core auto components, making them eligible for safe harbour provisions.
- Applicability: The amendments will be applicable for two assessment years – 2025-26 and 2026-27.
Impact of the Amendments
For Large Companies:
- The higher ₹300 crore threshold enables more businesses to benefit from safe harbour provisions.
- Reduces tax litigation and disputes by ensuring pre-approved pricing mechanisms.
For the EV Industry:
- The recognition of lithium-ion batteries as core auto components provides tax certainty.
- Encourages investment and growth in India’s EV ecosystem.
For Taxpayers:
- Provides clarity and stability in international tax compliance.
- Encourages foreign and domestic investment in the EV sector.