Draft Rule 101 of the Income-tax Rules, 2026 lays down the procedure for exercising the safe harbour option in cases of income attribution from business or profession. An assessee must furnish Form No. 49, duly completed, to the Assessing Officer before filing the return of income under section 263 for the relevant tax year. The form must be submitted electronically, either under digital signature or electronic verification code, and verified by the authorised person under section 265. Where the safe harbour option is not exercised, income from the eligible business will be determined under the normal provisions of the Act without reference to rule 100(2). The Assessing Officer is empowered to declare the safe harbour option invalid by a written order if the assessee has furnished incorrect facts or concealed material facts, but only after providing a reasonable opportunity of being heard. A copy of such order must be served on the assessee, and other provisions of the Act shall apply accordingly.
Rule 102 further provides that where the assessee validly exercises the safe harbour option and it is not declared invalid, the assessee cannot invoke the Mutual Agreement Procedure under a Double Taxation Avoidance Agreement in relation to that eligible business. Together, these rules establish procedural clarity and finality in safe harbour income attribution cases.
Extract of Rule No. 101 and 102 of Draft Income-tax Rules, 2026
Rule 101
Procedure governing safe harbour rules for income attribution in case of income from business and profession.
(1) For exercising option for safe harbour, the assessee shall furnish Form No. 49, complete in all respects, to the Assessing Officer before furnishing the return of income under section 263 for the relevant tax year.
(2) The income from eligible business shall be determined in accordance with the provisions of the Act without having regard to the provisions of rule 100(2), where the assessee does not exercise option for safe harbour under rule 100(1).
(3) The Assessing Officer may declare the option for safe harbour as invalid by an order in writing, where the assessee has—
(a) availed the safe harbour by furnishing incorrect facts; or
(b) concealed facts related to his business.
(4) The Assessing Officer shall afford a reasonable opportunity of being heard to the assessee before declaring the option for safe harbour invalid under sub-rule (3).
(5) The Assessing Officer shall serve a copy of the order referred to under sub-rule (3) to the assessee and the other provisions of the Act shall apply accordingly.
(6) Form No. 49 shall be furnished electronically either under digital signature or through electronic verification code and shall be verified by the person who is authorised to verify the return of income of the assessee under section 265.
Rule 102
Mutual Agreement Procedure not to apply where safe harbour for income attribution in case of income from business and profession is exercised.
The assessee shall not be entitled to invoke mutual agreement procedure under an agreement for avoidance of double taxation as referred to in section 159 in relation to an eligible business, if the assessee has exercised the option for safe harbour under rule 101 in respect of such business and such option is not declared invalid under the said rule.
