Rule 97 of the Draft Income-tax Rules, 2026 introduces a safe harbour framework for eligible specified domestic transactions. The transfer price declared by an eligible assessee will be accepted by income-tax authorities if the safe harbour option is validly exercised under Rule 98 and the transaction satisfies prescribed conditions. For electricity-related transactions—supply, transmission, or wheeling—the tariff must be determined or the methodology approved by the Appropriate Commission under the Electricity Act, 2003. For purchase of milk or milk products by a co-operative society, the price must be fixed based on quality parameters such as fat and Solid Not Fat (SNF) content. The rate must not vary based on quantity procured, shareholding percentage, or voting power of members, and must be transparently declared and publicly available. Once accepted, no comparability adjustment or allowance under section 165(3)(a)(ii) will be made to the declared transfer price. However, sections 171 and 172 will continue to apply to such transactions irrespective of the safe harbour option exercised.
Extract of Rule No. 97 of Draft Income-tax Rules, 2026
Rule 97
Safe harbour for eligible specified domestic transaction.
(1) The transfer price declared by an eligible assessee in respect of an eligible specified domestic transaction for a tax year shall be accepted by the income-tax authorities, if, __
(a) the option exercised by the said assessee is treated to be validly exercised under rule 98; and
(b) it is in accordance with the circumstances as specified in sub-rule (2).
(2) The circumstances referred to in sub-rule (1) in respect of the eligible specified domestic transaction specified in column B of the Table below shall be as specified in column C thereof.
TABLE
| Sl. No. | Eligible specified domestic Transaction |
Circumstances |
| A | B | C |
| 1. | Supply of electricity, transmission of electricity, wheeling of electricity, as the case may be. |
The tariff in respect of supply of electricity, transmission of electricity, wheeling of electricity, as the case may be, is determined or the methodology for determination of the tariff is approved by the Appropriate Commission in accordance with the provisions of the Electricity Act, 2003 (36 of 2003). |
| 2. | Purchase of milk or milk products. | The price of milk or milk products is determined at a rate which is fixed on the basis of the quality of milk, namely, fat content and Solid Not Fat (SNF) content of milk; and—
(a) the said rate is irrespective of, — (i) the quantity of milk procured; (ii) the percentage of shares held by the members in the co-operative society; (iii) the voting power held by the members in the society; and (b) such rates are routinely declared by the co-operative society in a transparent manner and are available in public domain. |
(3) No comparability adjustment and allowance under section 165(3)(a)(ii) shall be made to the transfer price declared by the eligible assessee and accepted under sub-rule (1).
(4) The provisions of sections 171 and 172 in respect of a specified domestic transaction shall apply irrespective of the fact that the assessee exercises his option for safe harbour in respect of such transaction.
