CBDT amends definition of intra-group loans for safe harbour

In line with new business practices, the Union finance ministry has amended the definition of intra-group loans and has removed the condition of sourcing the loan in Indian rupees. It has also amended the circumstances when they can be treated as safe harbour. 

The Central Board of Direct Taxes has notified amendments to Rule 10TA and Rule 10TD of the Income Tax Rules that relate to safe harbour provisions for international transactions, with effect from April 1, 2024. 

It has amended the definition of ‘intra-group loan’ to mean a loan advanced to an associated enterprise being a non-resident, where the loan is not advanced by an enterprise, being a financial company including a bank or a financial institution or an enterprise engaged in lending or borrowing in the normal course of business; and does not include credit line or any other loan facility which has no fixed term for repayment. 

Amit Agarwal, Partner, Nangia & Co, noted that key amendment in the proposed amendment to the safe harbour rules provides for intra-group loans where the condition of sourcing the loan in Indian rupees is being removed. “This is primarily to align with the current global economic scenario where the money could be sourced by the lending Indian company other than Indian rupees and as such this condition of sourcing in Indian rupees has been removed,” he said.  

Jyoti Prakash Gadia, Managing Director at Resurgent India, said the provision relating to the transfer of assets has also been amended to exclude those assets that are not like fixed assets for which depreciation has already been accounted for. “This will bring in more clarity and transparency and avoid multiple benefits accruing to the assessee,” he said. 

The minimum rates of interest applicable on such international group transactions have now been rightly revised and international benchmark rates have been introduced as the reference rates instead of the domestic rates since the transactions involve foreign currency funds. The interest spread over the benchmark reference rate has also been revised with applicable rates separately for the amounts below and above Rs 250 crore to facilitate a more realistic assessment in line with the rating of the associated group enterprise. 

“The amendments now announced in the rules make international transactions with group concerns at par with global transactions with more realistic and rule-based transfer pricing,” Gadia further said. 

Agarwal said that proposed amendment provides the ambit of the permissible credit rating agencies for the purpose of benchmarking the loan transaction, this is a welcome change which provides an open playground for other credit agencies. 

Saurrav Sood, Practice Leader–International Tax and Transfer Pricing, SW India, said the notification has also amended operating expenses and operating revenue definition by excluding loss or income on sale of assets on which depreciation has been charged and such depreciation forms part of operating expense. “The amendment will help in streamlining the calculation of revenue and expenses for the purposes of calculating base for charge of transfer pricing margins,” he said.