I-T rules tweaked to expand safe harbour laws, threshold hiked to ₹300 crore: Here’s how it benefits EV makers

I-T rules for safe harbour laws: The Central Board of Direct Taxes (CBDT) notified certain amendments in Income-Tax Rules (I-T), 1962, on Tuesday, March 25, to expand the scope of safe harbour rules. According to India's central tax regulating body, I-T laws have been tweaked to provide tax benefits to electric vehicle (EV) and EV battery makers in India.

According to CBDT's circular, the scope of the safe harbour rules has been expanded by increasing the threshold for availing safe harbour to ₹300 crore from ₹200 crore. The I-T department has expanded the scope of safe harbour by including lithium-ion batteries for use in electric or hybrid EVs under core auto components. The tweaks help EVs on tax benefits,

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The amendments will provide tax certainty to the assesses opting for safe harbour. They apply to two assessment years, 2025-26 and 2026-27. Under the income tax law, a safe harbour is used in transfer pricing parlance.

What are Safe Harbour Rules?

Transfer pricing refers to the prices at which various overseas divisions of a company transact with each other. Technically, a safe harbour is generally defined as circumstances in which the tax authority shall accept the transfer price declared by the taxpayer to be at arm's length. It usually benefits the assesses and businesses during imports of cars, batteries, and EVs.

Safe harbour rules provide tax certainty by allowing businesses to determine their arm’s length price (a concept in transfer pricing) without disputes with tax authorities. This applies under Section 92C and Section 92CA of the I-T Act, 1961.

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Impact of the I-T tweaks to safe harbour:

-For large companies: The higher threshold ( ₹300 crore) allows more businesses to benefit from safe harbour provisions, reducing litigation and tax disputes. This is similar to the safety net—if a company follows the rules, the tax department will not question how it sets its prices for international transactions. It means less tax hassle and fewer legal issues.

-For the EV industry: The inclusion of lithium-ion batteries in the core auto components category gives tax certainty to businesses in the EV sector, encouraging growth in India's EV industry. EV battery makers get tax benefits

-For Taxpayers: These amendments provide greater clarity and stability in tax compliance for companies engaged in international transactions. The rules also encourage investment in EVs by giving tax clarity.

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Companies that make lithium-ion batteries (used in electric and hybrid cars) will now be considered part of the core auto industry for tax purposes. This means they will get certain tax advantages without worrying about disputes with the tax department.

Finance Bill 2025 passed in Parliament

Meanwhile, the Lok Sabha passed the Finance Bill 2025 on March 25, along with 35 government amendments, including one abolishing a six per cent digital tax on online advertisements. With the passage of the Finance Bill 2025, the Lok Sabha completed its part of the Budgetary approval process.

The Upper House, Rajya Sabha, will now consider the Bill. After the Rajya Sabha approves the Bill, the Budget process for 2025-26 will be complete. "This Finance Bill, we have attempted to do several things, which as per as the aspiration and the expectation of the people of India and also the goal that the Prime Minister has given us towards the Viksit Bharat by 2047," said FM Sitharaman. She said the bill aims to provide tax certainty.