I-T Rules Amended: How Safe Harbour Law Expansion Benefits India’s EV Industry
The Central Board of Direct Taxes has amended safe harbour rules under the Income Tax Act, increasing the threshold to Rs 300 crore and including lithium-ion batteries as core auto components.
The Central Board of Direct Taxes (CBDT) has introduced amendments to the Income Tax Rules, 1962, aimed at broadening the scope of safe harbour provisions. The changes, notified on Mar. 25, aim to offer tax benefits to India’s electric vehicle (EV) and EV battery manufacturers.
According to the CBDT’s circular, as reported by Livemint, the safe harbour threshold has been increased from Rs 200 crore to Rs 300 crore. Apart from that, lithium-ion batteries used in electric or hybrid vehicles have now been classified as core auto components. This inclusion offers tax relief to businesses involved in EV battery manufacturing, it said.
The revised provisions will apply for two assessment years — 2025-26 and 2026-27 — providing greater tax certainty for businesses opting for the safe harbour framework.
What Are Safe Harbour Rules?
Safe harbour provisions are an integral part of transfer pricing regulations, governing transactions between various divisions of multinational companies. Under these rules, tax authorities accept the declared transfer price as being at arm’s length, thereby reducing the risk of disputes. These provisions, governed by Sections 92C and 92CA of the Income Tax Act, 1961, offer businesses clarity and security in international transactions.
Impact Of The Amendments
Raising the threshold to Rs 300 crore enables a wider range of companies to avail safe harbour benefits, effectively minimising tax-related litigation. By adhering to these provisions, large companies can expect fewer challenges from tax authorities regarding pricing in cross-border transactions.
For EV firms, the recognition of lithium-ion batteries as core auto components is a major change, granting tax certainty to businesses in the EV supply chain. By offering tax advantages to battery manufacturers, the government aims to encourage investment and accelerate the growth of India’s EV market.
The amendments also mean a more stable tax environment for companies engaged in international business. By reducing the scope for tax disputes, the new rules promote ease of compliance and incentivise investment in the EV industry.
