The tax department has notified the ‘safe harbour’ rates for FY21 for calculation of transfer pricing by foreign companies in India. 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.
The Central Board of Direct Taxes, via a notification, has extended the applicability of Safe Harbour Rules (SHR) to 2020-21.
As per the notification, the rates under SHR applicable from 2016-17 to 2018-19, and later extended to 2019-20, will continue to apply for 2020-21 as well.
Transfer pricing implies the prices at which various overseas divisions of a company transact with each other. Following international best practice, India introduced the concept of SHR in Finance Act 2009.
Post that, the first round of SHR provisions were introduced in August 2013 for a period of three years, followed by a revision in 2017 in the SHR which was applicable till 2019-20.