Safe harbour rules in transfer pricing: 2026-27 margins and how to opt in

A safe harbour is a set of circumstances in which the tax department accepts your transfer price without testing it. Under Rule 89(1), the transfer price you declare for an eligible international transaction is accepted if your option is valid and the price meets the condition in the table below. No comparability adjustment is made on top of it.

Two things do not go away. Rule 89(6) says the documentation and accountant's report provisions still apply, so you still keep the TP file and file Form 48 (Form 3CEB up to FY 2025-26). Our Form 3CEB filing page covers that report. And safe harbour covers only the eligible transaction: other transactions with the group are tested in the normal way.

Rule 89(4) applies these conditions for a block of three tax years starting with tax year 2026-27, and for later blocks unless modified.

For a rupee loan the benchmark is the State Bank of India one-year marginal cost of funds lending rate (MCLR) as on 1 April of the tax year:

For a foreign currency loan the benchmark is the reference rate of that currency on 30 September of the tax year. The spread depends on the borrower's rating and on whether total foreign currency loans to all associated enterprises exceed ₹250 crore on 31 March:

The reference rates are 6-month Term SOFR plus 0.45% for US dollars, 6-month EURIBOR for euros, 6-month Term SONIA plus 0.30% for sterling, 6-month TORF plus 0.10% for yen, 6-month BBSW for Australian dollars and 6-month compounded SORA plus 0.45% for Singapore dollars. The credit rating must come from a SEBI-registered, RBI-accredited agency; if there are several, the lowest one counts.

The IT services margin is only for a provider with insignificant risk working for a non-resident associated enterprise, which the rules call the foreign principal. Rule 87(2) lists what the department looks at:

• the foreign principal performs the economically significant functions, such as conceptualisation, product design and strategic direction
• the foreign principal provides the capital, funds and intangibles, and the Indian company is paid for the work it does
• the Indian company works under the foreign principal's direct supervision, and the principal actually controls the work
• the Indian company bears no economically significant realised risks. If the contract puts risk on the principal but conduct shows the Indian company controls it, the contract does not decide the question
• the Indian company has no legal or economic ownership of the intangibles or results it produces

That last-but-one point is why the wording of your intercompany agreement has to match how the business actually runs.

IT services (Rule 91). File Form 49 electronically with the Director General of Income-tax (Systems) by the return due date for the first year. The option then runs for five consecutive tax years, and the ₹2,000 crore limit is tested only in the first year. Verification is electronic, and you hear within two months of the end of the month you filed. For each of the next four years you file a statement of the eligible transactions and margins by the return due date. You can withdraw only up to six months after the end of the first year, and after withdrawing you cannot opt in again until the five years are over. Form 49 is certified by the CEO or the chairman and managing director.

All other eligible transactions (Rule 90). File Form 49 with the Assessing Officer by the return due date, and file the return on or before the date you file Form 49. If the officer doubts eligibility, he can refer it to the Transfer Pricing Officer within two months. If the TPO declares the option invalid, you can object to the Commissioner within 15 days.

Safe harbour does not apply to transactions with an associated enterprise in a jurisdiction notified under section 176, or in a no-tax or low-tax country or territory (Rule 92).

For FY 2025-26 the option is exercised in Form 3CEFA under Rules 10TA to 10TG of the 1961 Rules, which had separate margins for software development, ITeS and KPO. The 2026 margins above apply from tax year 2026-27. If you are deciding for FY 2025-26, we check the old-rule margins against your numbers before you file.

Safe harbour buys certainty at a price. If a proper benchmarking study would put you at a 13.5% markup, opting for 15.5% means paying tax on an extra 2% of cost every year.

Example: an Indian captive with ₹50 crore of operating expense. The extra 2% is ₹1 crore of taxable profit a year. At the 25.17% rate most companies pay, that is about ₹25 lakh of tax a year, or about ₹1.26 crore over a five-year IT services block. In return there is no comparability study for that transaction and no TPO dispute over the margin. Our guide to the arm's length price shows how the benchmarked range is worked out, which is the number to compare against.

We run both numbers before you decide. See our transfer pricing services, where the Form 49 filing is ₹4,999.