India increases safe harbour threshold, benefits EV manufacturers

The government has updated its safe harbour rules to help businesses, especially electric vehicle (EV) makers, by increasing the financial threshold. The safe harbour limit is now set at ₹300 crore, up from ₹200 crore. This change will apply to the assessment years 2025-26 and 2026-27. Lithium-ion batteries are now included in the definition of core auto components. This will benefit manufacturers of electric and hybrid vehicles in India by providing tax advantages. The Central Board of Direct Taxes (CBDT) announced that these amendments aim to create tax certainty and cut down on legal disputes in international business transactions. Additionally, the government plans to allow Indian fund managers to establish and manage global or India-focused funds from within the country. Previously, Indian residents could only hold less than 5% of such funds. The new amendment removes the "indirectly" clause, removing a barrier for setting up these funds in India. These safe harbour rules, introduced under the Income Tax Act, 1961, set standard pricing margins for transactions between related businesses. This system is designed to avoid extensive scrutiny from tax authorities. Finance Minister Nirmala Sitharaman emphasized during her budget speech that these updates reflect the government’s commitment to support business growth and reduce tax-related issues.