CBDT redefines ‘intra-group loans’ and amends safeharbour norms for MNC group transactions

[Vivek Jalan]

The CBDT vide Notification No. 104/2023 dated December 19, 2023, has issued the Income-tax (Twenty-Ninth Amendment) Rules, 2023, amending Rules 10TA and 10TD of the Income Tax Rules, 1962 (“the IT Rules”). The amendments aim to redefine intra-group loans and specify conditions under which they fall within the Safe Harbour provisions. These changes are set to come into effect from April 1, 2024.

Rule 10TA of the Income Tax Rules, 1962 outlines several definitions pertaining to Safe Harbour Rules, while additional provisions related to these rules are specified in rules ranging from Rule 10TB to Rule 10TG. The CBDT has notified the Income-tax (Twenty-Ninth Amendment) Rules, 2023, to amend Rules 10TA and 10TD. Rules have been amended to revise the definition of intra-group loans and circumstances in which they are treated as Safe Harbour. The intra-group loan definition has been revised to include loans extended to “Associate Enterprise” rather than wholly owned subsidiaries. Further, the condition for the loans to be advanced must be sourced in Indian Rupees has been omitted. The updated definition of intra-group loan is now stated as follows:

“Intra-group loan” means a 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 10TD has been amended to replace the conditions for safe harbour in the event of the advancement of intra-group loans denominated in a foreign currency. The reference to “CRISIL” credit rating has been omitted from Rule 10TD. Thus, the credit rating of any other entities can be used while determining Safe Harbour.

These changes Provide greater clarity and certainty for taxpayers dealing with intragroup loans. It reduces potential disputes with tax authorities regarding transfer pricing of such loans. It also Promote ease of doing business for multinational companies operating in India.

For taxpayers, the existing loans may need to be reviewed and restructured to comply with the new definition and safe harbour conditions. With the widened definitions of intra-group loans, the tax department may see increasing number of taxpayers opting for safe harbour provisions who have foreign currency loan transactions with their group entities.