CBDT Notifies new Safe Harbour Rules for Intra Group Loans

CA Reetika Agarwal 20 Dec 2023 2,001 Views 0 comment Print Income Tax | Articles

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Central Board of Direct Tax (CBDT), on 19^th December 2023, notifies new Safe Harbour Rules for Intra Group Loans via Notification No. 104/2023-Income Tax, thereby amending the clause (f) of Rule 10TA and serial number (4) and (5) of sub rule (2A) of Rule 10TD. The modifications aim to provide clearer guidelines on the chargeability of interest rates on intra-group loans extended to associated enterprises, addressing previous ambiguities in tax treatment.

Analysis of Amendment:

Existing Rule

Amended Rule

Clause (f) of Rule 10TA:

(f) “intra-group loan” means loan advanced to wholly owned subsidiary being a non-resident, where the loan—

(i) is sourced in Indian rupees;

(ii) 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

(iii) does not include credit line or any other loan facility which has no fixed term for repayment.

‘(f) “intra-group loan” means loan advanced to an associated enterprise being a non-resident, where the loan—

i. 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

ii. does not include credit line or any other loan facility which has no fixed term for repayment;

Rule 2A of Rule 10TD- Serial No 4

Advancing of intra-group loans referred to in item (iv) of rule 10TC where the amount of loan is denominated in Indian Rupees (INR).

The interest rate declared in relation to the eligible international transaction is not less than the one-year marginal cost of funds 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 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.

Advancing of intra-group loans referred to in item (iv) of rule 10TC where the amount of loan is denominated in Indian Rupees (INR).

i. 175 basis points, where the associated enterprise has credit rating between AAA to A or its equivalent;

ii. 325 basis points, where the associated enterprise has credit rating of BBB-, BBB or BBB+ or its equivalent;

iii. 475 basis points, where the associated enterprise has credit rating between BB to B or its equivalent;

iv. 625 basis points, where the associated enterprise has credit rating between C to D or its equivalent; or

Rule 2A of Rule 10TD- Serial No 5

Advancing of intra-group loans referred to in item (iv) of rule 10TC where the amount of loan is denominated in foreign currency.

The interest rate declared in relation to the eligible international transaction is not less than the six-month London Inter-Bank 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.

Advancing of intra-group loans referred to in item (iv) of rule 10TC where the amount of loan is denominated in foreign currency.

The interest rate declared in relation to the eligible international transaction is not less than the reference rate of the relevant foreign currency as on 30th September of the relevant previous year plus, –

(a) If amount of loan advanced to the associated enterprise including loans to all associated enterprises does not exceed a sum equivalent to two hundred and fifty crore Indian rupees in the aggregate as on 31^st March of the relevant previous year:

i. 150 basis points, where the associated enterprise has a credit rating of AAA, AA+, AA, AA-, A+, A, A- or equivalent;

ii. 300 basis points, where the associated enterprise has credit rating of BBB+, BBB, BBB- or equivalent;

iii. 400 basis points, where the associated enterprise has a credit rating of BB+, BB, BB-, B+, B, B-, C+, C , C-, D or equivalent or where the credit rating of the associated enterprise is not available;

(b) If amount of loan advanced to the associated enterprise including loans to all associated enterprises exceeds a sum equivalent to two hundred and fifty crore Indian rupees in the aggregate as on 31st March of the relevant previous year:

i. 150 basis points, where the associated enterprise has a credit rating of AAA, AA+, AA, AA-, A+, A, A- or equivalent;

ii. 300 basis points, where the associated enterprise has credit rating of BBB+, BBB, BBB- or equivalent;

iii. 450 basis points, where the associated enterprise has a credit rating of BB+, BB, BB-, B+, B, B- or equivalent;

iv. 600 basis points, where the associated enterprise has credit rating of C+, C , C-, D or equivalent or where the credit rating of the associated enterprise is not available.”;

‘Explanation.– For the purposes of this sub-rule,—

(a) “reference rate” means,–

i. for US dollar, 6-month Term Secured Overnight Financing rate (SOFR), currently administered by Chicago Mercantile Exchange (CME), as increased by 45 basis points;

ii. for Euro, 6-month Euro Inter Bank Offered Rate (EURIBOR), currently administered by European Money Markets Institute;

iii. for UK Pound Sterling, 6-month Term Sterling Overnight Index Average (SONIA), currently administered by ICE Benchmark Administration/Refinitiv, as increased by 30 basis points;

iv. for Japanese Yen, 6-month Tokyo Term Risk Free Rate (TORF), currently benchmarked by QUICK Benchmarks Inc, as increased by 10 basis points;

v. for Australian dollar, 6-month Bank Bill Swap Rates (BBSW) currently administered by Australian Securities Exchange; and

vi. for Singapore dollar, 6-month Compounded Singapore Overnight Rate Average (SORA), currently administered by Monetary Authority of Singapore, as increased by 45 basis points;

(b) “credit rating” means the credit rating assigned to the associated enterprise by a Securities and Exchange Board of India registered and Reserve Bank of India accredited credit rating agency which is applicable for the relevant previous year, so however that-

i. where the associated enterprise has only one credit rating, then such rating shall be taken as its credit rating; and

ii. where the associated enterprise has a credit rating from more than one such credit rating agency, then the least of such ratings shall be taken as its credit rating.’.

A welcome notification by the CBDT providing more clear guidance regarding the chargeability of Interest Rates on Intra Group loans provided to Associated Enterprises denominated in different foreign currencies. Previously, there was some ambiguity in respect of the chargeability of Interest rates and its tax treatment due to which the same is challenged by the Indian Revenue Authorities. The result of which was long pending tax disputes with increased burden on taxpayer in the form of additional tax liabilities.

With this guidance, taxpayer gets some sign of relief as the Interest Payment transaction will not be subject to further adjustments where the conditions as prescribed in the amended rule are satisfied.

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