After the budget announcement, the Central Board of Direct Taxes (CBDT) has extended its ‘safe harbor rules’ to foreign companies involved in the sale of rough diamonds here. This is expected to reduce the number of lawsuits and further increase business.
In her Budget speech, Finance Minister Nirmala Sitharaman said: “To reduce litigation and provide certainty in international taxation, we will expand the scope of the safe harbor rules and make them more attractive.” Accordingly, CBDT has issued a notification to amend the income tax rules. New amendment “unless otherwise provided in these rules, they shall be deemed to have come into force on April 1, 2024.”
“Safe harbor rules” refer to circumstances in which the tax authorities accept the transfer price declared by the taxpayer. ‘Transfer price’ is the price paid for goods or services transferred from one unit of an organization to other units in different countries (with exceptions).
The notification expands the definition of ‘eligible assessor’ by including a foreign company engaged in diamond mining that has availed itself of the option to apply the safe harbor rules in accordance with the IT Rules.
‘Eligible Company’ means a company that sells rough diamonds in a notified Special Zone in India. “Gross receipts” means the sum of the amount paid or payable to and the amount received or deemed to have been received by the eligible taxpayer or by any person on his behalf by reason of the sale of rough diamonds.
Rough diamonds here include uncut or unpolished, unassorted, rough or simply sawn, cleaved or rough diamonds, and not conflict diamonds as defined by the Kimberley Process.
“The income tax authorities will accept the safe harbor option exercised by an eligible taxpayer in a relevant previous year” when the income is in accordance with the circumstances prescribed under the income tax rules. This circumstance means that “the profits and gains of the eligible business which are taxable under the head ‘Profits and gains from business or profession’ will be 4 percent. or more of the gross receipts from such businesses.”
Manish Garg, Lead-Transfer Pricing and Litigation at AKM Global said: “This move will provide tax certainty and stability to foreign companies planning to do diamond business in India. This is expected to further strengthen India’s position as a global leader in the diamond cutting and polishing sector, which already employs a large number of skilled workers.”
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Published on November 30, 2024