Draft Rule 88 of the Income-tax Rules, 2026 defines “eligible international transaction” for the purpose of safe harbour provisions. The rule applies to transactions between an eligible assessee and its associated enterprise, where at least one party is a non-resident. The covered transactions include provision of information technology services such as software development services, information technology enabled services (ITES), knowledge process outsourcing (KPO) services, and contract research and development services relating to software development. It also includes the advance of intra-group loans and provision of corporate guarantees, subject to conditions that the guaranteed amount does not exceed ₹100 crore or, where it exceeds ₹100 crore, the associated enterprise holds a credit rating of adequate to highest safety from a SEBI-registered agency. Further, the rule covers contract research and development services relating to generic pharmaceutical drugs, manufacture and export of core and non-core auto components, receipt of low value-adding intra-group services, and provision of data center services. By specifically enumerating these transactions and prescribing monetary and credit rating thresholds in certain cases, Rule 88 provides clarity on the scope of safe harbour eligibility and supports streamlined transfer pricing compliance.
Extract of Rule No. 88 of Draft Income-tax Rules, 2026
Rule 88
Eligible international transactions for safe harbour.
“Eligible international transaction” means an international transaction between the eligible assessee and its associated enterprise, one of which is necessarily a non-resident, and which comprises of:—
(a) provision of information technology services consisting of any one or more of the following:—
(i) provision of software development services;
(ii) provision of information technology enabled services;
(iii) provision of knowledge process outsourcing services;
(iv) provision of contract research and development services wholly or partly relating to software development;
(b) advance of intra-group loan;
c) provision of corporate guarantee, where the amount guaranteed, —
(i) does not exceed one hundred crore rupees; or
(ii) exceeds one hundred crore rupees, and the credit rating of the associated enterprise, done by an agency registered with the Securities and Exchange Board of India, is of the adequate to highest safety;
(d) provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs;
(e) manufacture and export of core auto components;
(f) manufacture and export of non-core auto components; or
(g) receipt of low value-adding intra-group services from one or more members of its group; or
(h) provision of the data center services.7
