MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 7th June, 2017
INCOME-TAX
G.S.R. 557(E).-- In exercise of the powers conferred by section 295 read with sub-section (2) of section 92CB of
the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to
amend the Income-tax Rules, 1962, namely:___
1. (1) These rules may be called the Income-tax (12th Amendment) Rules, 2017.
(2) They shall come into force and shall be deemed to have come into force from the 1st day of April,
2017.
2. In the Income-tax Rules, 1962, ___
(I) in rule 10TA, ___
(i) for clause (a), following clause shall be substituted, namely:___
"(a) "accountant" means an accountant referred to in the Explanation below sub-section (2) of section 288 of the
Act and includes any person recognised for undertaking cost certification by the Government of the country
where the associated enterprise is registered or incorporated or any of its agencies, who fulfills the following
conditions, namely:--
(I) if he is a member or partner in any entity engaged in rendering accountancy or valuation services then, --
(i) the entity or its affiliates have presence in more than two countries; and
(ii) the annual receipt of the entity in the year preceding the year in which cost certification is undertaken
exceeds ten crore rupees;
(II) if he is pursuing the profession of accountancy individually or is a valuer then,--
(i) his annual receipt in the year preceding the year in which cost certification is undertaken, from the exercise of
profession, exceeds one crore rupees; and
(ii) he has professional experience of not less t han ten years."
(ii) the existing clause (a) shall be read as clause (aa);
(iii) in clause (aa) so amended, in sub-clause (viii), after the word "principal" the words ", except where the
source code has been made available to carry out routine functions like debugging of the software" shall be
inserted;
(iv) after clause (c), the following clause shall be inserted, namely:___
`(ca) "employee cost" includes,___
(i) salaries and wages;
(ii) gratuities;
(iii) contribution to Provident Fund and other funds;
(iv) the value of perquisites as specified in clause (2) of section 17 of the Act;
(v) employment related allowances, like medical allowance, dearness allowance, travel allowance and any other
allowance;
(vi) bonus or commission by whatever name called;
(vii) lumpsum payments received at the time of termination of service or superannuation or voluntary
retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of
pension and similar payments;
(viii) expenses incurred on contractual employment of persons performing tasks similar to those performed by
the regular employees;
10 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II--SEC. 3(i)]
(ix) outsourcing expenses, to the extent of employee cost, wherever ascertainable, embedded in the total
outsourcing expenses:
Provided that where the extent of employee cost embedded in the total outsourcing expenses is not
ascertainable, eighty per cent. of the total outsourcing expenses shall be deemed to be the employee cost
embedded in the total outsourcing expenses;
(x) recruitment expenses;
(xi) relocation expenses;
(xii) training expenses;
(xiii) staff welfare expenses; and
(xiv) any other expenses related to employees or the employment;';
(v) after clause (g), the following clause shall be inserted, namely:___
"(ga) "low value-adding intra-group services" means services that are performed by one or more members of a
multinational enterprise group on behalf of one or more other members of the same multinational enterprise
group and which,___
(i) are in the nature of support services;
(ii) are not part of the core business of the multinational enterprise group, i.e., such services neither constitute
the profit-earning activities nor contribute to the economically significant activities of the multinational
enterprise group;
(iii) are not in the nature of shareholder services or duplicate services;
(iv) neither require the use of unique and valuable intangibles nor lead to the creation of unique and valuable
intangibles;
(v) neither involve the assumption or control of significant risk by the service provider nor give rise to the
creation of significant risk for the service provider; and
(vi) do not have reliable external comparable services that can be used for determining their arm's length price,
but does not include the following services, namely:___
(i) research and development services;
(ii) manufacturing and production services;
(iii) information technology (software development) services;
(iv) knowledge process outsourcing services;
(v) business process outsourcing services;
(vi) purchasing activities of raw materials or other materials that are used in the manufacturing or production
process;
(vii) sales, marketing and distribution activities;
(viii) financial transactions;
(ix) extraction, exploration, or processing of natural resources; and
(x) insurance and reinsurance;"
(vi) in clause (j),___
(A) in the long line, after the words "operations including" the words "costs relating to Employee Stock Option
Plan or similar stock-based compensation provided for by the associated enterprises of the assessee to the
employees of the assessee, reimbursement to associated enterprises of expenses incurred by the associated
enterprises on behalf of the assessee, amounts recovered from associated enterprises on account of expenses
II (i) 11
incurred by the assessee on behalf of those associated enterprises and which relate to normal operations of the
assessee and" shall be inserted;
(B) after item (viii), the following provisos shall be inserted, namely:___
"Provided that reimbursement to associated enterprises of expenses incurred by the associated enterprises on
behalf of the assessee shall be at cost:";
"Provided further that amounts recovered from associated enterprises on account of expenses incurred by
the assessee on behalf of the associated enterprises and which relate to normal operations of the assessee
shall be at cost;"
(vii) in clause (k), in the long line, after the words "normal operation" the words "including costs relating to
Employee Stock Option Plan or similar stock-based compensation provided for by the associated enterprises of
the assessee to the employees of the assessee" shall be inserted;
(viii) after clause (l), the following clause shall be inserted, namely: ___
"(la) "relevant previous year" means the previous year relevant to t he assessment year in which the option for
safe harbour is validly exercised;".
(II) in rule 10TB, in sub-rule (1), ___
(i) in clause (v), the word "or" shall be omitted;
(ii) in clause (vi), after the word "sales" the word "; or" shall be inserted;
(iii) after clause (vi), the following clause shall be inserted, namely: ___
"(vii) is in receipt of low value-adding intra-group services from one or more members of its group.".
(III) in rule 10TC, ___
(i) in clause (viii), the word "or" shall be omitted;
(ii) in clause (ix), after the word "components" the word "; or" shall be inserted;
(iii) after clause (ix), the following clause shall be inserted, namely: ___
"(x) receipt of low value-adding intra-group services from one or more members of its group,".
(IV) in rule 10TD, ___
(i) in sub-rule (1), after the words, brackets and number "sub -rule (2)" the words, brackets, numbers and letter
"or, as the case may be, sub-rule (2A)" shall be inserted;
(ii) after sub-rule (2), the following sub-rule shall be inserted, namely:___
"(2A) The circumstances referred to in sub-rule (1) in respect of the eligible international transaction specified
in column (2) of the Table below shall be as specified in the corresponding entry in column (3) of the said
Table:--
Sl. Eligible International Transaction Circumstances
No.
(1) (2) (3)
1. Provision of software development services The operating profit margin declared by the eligible assessee
referred to in item (i) of rule 10TC. from the eligible international transaction in relation to operating
expense incurred is
12 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II--SEC. 3(i)]
(i) not less than 17 per cent., where the value of international
transaction does not exceed a sum of one hundred crore rupees;
or
(ii) not less than 18 per cent., where the value of international
transaction exceeds a sum of one hundred crore rupees but does
not exceed a sum of two hundred crore rupees.
2. Provision of information technology enabled The operating profit margin declared by the eligible assessee
services referred to in item (ii) of rule 10TC. from the eligible international transaction in relation to operating
expense is
(i) not less than 17 per cent., where the aggregate value of such
transactions entered into during the previous year does not
exceed a sum of one hundred crore rupees; or
(ii) not less than 18 per cent., where the aggregate value of such
transactions entered into during the previous year exceeds a sum
of one hundred crore rupees but does not exceed a sum of two
hundred crore rupees.
3. Provision of knowledge process outsourcing The value of international transaction does not exceed a sum of
services referred to in item (iii) of rule 10TC. two hundred crore rupees and the operating profit margin
declared by the eligible assessee from the eligible international
transaction in relation to operating expense is
(i) not less than 24 per cent. and the Employee Cost in relation to
the Operating Expense is at least sixty per cent.;
(ii) not less than 21 per cent. and the Employee Cost in relation
to the Operating Expense is forty per cent. or more but less than
sixty per cent.; or
(iii) not less than 18 per cent. and the Employee Cost in relation
to the Operating Expense does not exceed forty per cent.
4. Advancing of intra-group loans referred to in The interest rate declared in relation to the eligible international
item (iv) of rule 10TC where the amount of transaction is not less than the one-year marginal cost of funds
loan is denominated in Indian Rupees (INR). lending rate of State Bank of India as on 1st April of the relevant
previous year plus,
(i) 175 basis points, where the associated enterprise has CRISIL
credit rating between AAA to A or its equivalent;
(ii) 325 basis points, where the associated enterprise has CRISIL
credit rating of BBB-, BBB or BBB+ or its equivalent;
(iii) 475 basis points, where the associated enterprise has CRISIL
credit rating between BB to B or its equivalent;
(iv) 625 basis points, where the associated enterprise has CRISIL
credit rating between C to D or its equivalent; or
(v) 425 basis points, where credit rating of the associated
II (i) 13
enterprise is not available and the amount of loan advanced to the
associated enterprise including loans to all associated enterprises
in Indian Rupees does not exceed a sum of one hundred crore
rupees in the aggregate as on 31st March of the relevant previous
year.
5. Advancing of intra-group loans referred to in The interest rate declared in relation to the eligible international
item (iv) of rule 10TC where the amount of transaction is not less than the six-month London Inter-Bank
loan is denominated in foreign currency. Offer Rate of the relevant foreign currency as on 30th September
of the relevant previous year plus,
(i) 150 basis points, where the associated enterprise has CRISIL
credit rating between AAA to A or its equivalent;
(ii) 300 basis points, where the associated enterprise has CRISIL
credit rating of BBB-, BBB or BBB+ or its equivalent;
(iii) 450 basis points, where the associated enterprise has CRISIL
credit rating between BB to B or its equivalent;
(iv) 600 basis points, where the associated enterprise has CRISIL
credit rating between C to D or its equivalent; or
(v) 400 basis points, where credit rating of the associated
enterprise is not available and the amount of loan advanced to the
associated enterprise including loans to all associated enterprises
does not exceed a sum equivalent to one hundred crore Indian
rupees in the aggregate as on 31st March of the relevant previous
year.
6. Providing corporate guarantee referred to in The commission or fee declared in relation to the eligible
sub-item (a) or sub-item (b) of item (v) of international transaction is at the rate not less than one per cent.
rule 10TC. per annum on the amount guaranteed.
7. Provision of contract research and The operating profit margin declared by the eligible assessee
development services wholly or partly from the eligible international transaction in relation to operating
relating to software development referred to expense incurred is not less than 24 per cent., where the value of
in item (vi) of rule 10TC. the international transaction does not exceed a sum of two
hundred crore rupees.
8. Provision of contract research and The operating profit margin declared by the eligible assessee
development services wholly or partly from the eligible international transaction in relation to operating
relating to generic pharmaceutical drugs expense incurred is not less than 24 per cent., where the value of
referred to in item (vii) of rule 10TC. the international transaction does not exceed a sum of two
hundred crore rupees.
9. Manufacture and export of core auto The operating profit margin declared by the eligible assessee
components referred to in item (viii) of rule from the eligible international transaction in relation to operating
10TC. expense is not less than 12 per cent.
14 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II--SEC. 3(i)]
10. Manufacture and export of non-core auto The operating profit margin declared by the eligible assessee
components referred to in item (ix) of rule from the eligible international transaction in relation to operating
10TC. expense is not less than 8.5 per cent.
11. Receipt of low value-adding intra-group The entire value of the international transaction, including a
services in item (x) of rule 10TC. mark-up not exceeding 5 per cent., does not exceed a sum of ten
crore rupees:
Provided that the method of cost pooling, the exclusion of
shareholder costs and duplicate costs from the cost pool and the
reasonableness of the allocation keys used for allocation of costs
to the assessee by the overseas associated enterprise, is certified
by an accountant.";
(iii) after sub-rule (3), the following sub-rule shall be inserted, namely:___
"(3A) The provisions of sub-rules (1) and (2A) shall apply for the assessment year 2017-18 and two assessment
years immediately following that assessment year:
Provided that where an eligible assessee is eligible to exercise option under sub-rule (2) or, as the case may be,
sub-rule (2A) above, the assessee shall have the right to choose the option which is most beneficial to him."
(iv) in sub-rule (4), after the words, brackets and number "and (2)" the words, brackets, numbers and letter " or,
as the case may be, (2A)" shall be inserted.
(V) in rule 10TE, ___
(i) in sub-rule (2), after the second proviso, the following proviso shall be inserted, namely:___
`Provided also that in case of the option for safe harbour validly exercised under sub -rule (2A) of rule 10TD, the
word "three" shall be substituted for "five".';
(ii) in sub-rule (9), after the words, brackets and number "sub -rule (2)", wherever they may occur, the words,
brackets, number and letter "or, as the case may be, sub-rule (2A)" shall be inserted;
(iii) in sub-rule (13), after the words, brackets and number "sub -rule (2)" the words, brackets, number and letter
"or, as the case may be, sub-rule (2A)" shall be inserted.
[Notification No. 46/2017/ F. No. 370142/6/2017-TPL]
RAJESH KUMAR KEDIA, Director (Tax Policy and Legislation)
Note : The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section-3, Sub-section (ii) vide
number S.O. 969 (E) dated the 26 th March, 1962 and were last amended vide notification number G.S.R.554(E),
dated the 5th June, 2017.
Uploaded by Dte. of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi-110064
and Published by the Controller of Publications, Delhi-110054.
ALOK KUMAR Digitally signed by ALOK KUMAR
Date: 2017.06.08 13:41:22 +05'30'
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