The Central Board of Direct Taxes (CBDT) in India has recently announced significant amendments to the Income Tax Rules, specifically pertaining to intra-group loans and their classification under safe harbour provisions. These changes, which come into effect from April 1, 2024, represent a notable shift in the tax framework for such financial transactions.
Key highlights of these amendments include:
- Amendment of Rules 10TA and 10TD: The CBDT has notified the Income-tax (Twenty-Ninth Amendment) Rules, 2023, to revise the definition of intra-group loans and the circumstances in which they are treated as Safe Harbour. This involves removing the condition that the loan must be sourced in Indian rupees, thereby offering more flexibility in how these loans are structured and managed.
- Changes in Safe Harbour Rules: The amendments provide new guidelines for determining the interest rate for intra-group loans, both in Indian Rupees and foreign currency. These rates are now linked to various benchmarks such as the State Bank of India’s marginal cost of funds lending rate, the London Inter-Bank Offer Rate, and other relevant rates, depending on the currency and credit rating of the associated enterprise. The amendments detail specific basis points to be added to these reference rates, offering clarity for businesses engaging in these transactions.
- Alignment with International Norms: Experts have noted that these amendments align with international business practices, providing more clarity and transparency for businesses. This move is seen as a positive step towards making India’s tax laws more consistent with global standards, potentially improving the ease of doing business in the country.
- Impact on Businesses: The changes are expected to simplify compliance for companies engaging in intra-group loans, reducing the administrative burden and potential for disputes. By offering more flexibility in how these loans are structured and clarifying the tax implications, the CBDT aims to create a more conducive environment for corporate transactions.
These amendments signify the Indian government’s ongoing efforts to refine its tax policies to better suit the evolving business landscape, particularly in the context of international transactions and multinational corporations.