Revenue Secretary Sumit Bose has said that the government has introduced a draft proposal to ease the taxation burden on the information technology (IT) sector to boost profits.
Bose said the government had issued a notification with an objective to curb the disputes related to transfer pricing by relaxing the prevailing norms.
Safe harbour rules determine the conditions under which the country's tax department accepts the transfer price provided by the tax payers.
Transfer pricing is a tax allocation method used to attribute a company's net profit before the deduction of taxable amount from it.
In India, transfer pricing is established based on the analysis of pricing in comparable transactions between two unrelated parties or in simpler terms, the cross-border transactions.
"In case of transactions in the nature of routine ITES (Information Technology Services Enabled) and IT (Information Technology) activities, the earlier ceiling of Rs. 100 crore (one billion) has been removed. Transaction upto Rs.500 crores (five billion) have been provided safe harbour margin of 20% and transaction above Rs.500 crores (five billion) have been provided safe harbour margin of 22%. Similarly the ceiling of Rs. 100 crores (one billion), provided for the transaction in the nature of corporate guarantee has been removed," he said.
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Further he said that the proposed norms, if finalised, would prevail for five fiscal years.
"The safe harbour rules have been applicable for five assessment year beginning from the assessment year 2013-2014. If you recall, earlier it was for two years," added Bose.
In India, the safe harbour rules were part of the Finance Act of 2009. However, the rules were never notified by the government earlier.
The issue came to the forefront after Prime Minister Manmohan Singh formed a committee to address the concerns of the industries around transfer pricing.
