Section 167 Income Tax Act 2025: What Are Safe Harbour Rules?

Section 167 authorises the Central Board of Direct Taxes (CBDT) to frame safe harbour rules under which tax authorities must accept qualifying declared transfer prices or certain income attributable to operations in India, subject to prescribed conditions.

Current law: The Income-tax Act, 2025 took effect on 1 April 2026. Section 167 corresponds to section 92CB of the Income-tax Act, 1961. The specific eligibility conditions, margins, procedures and applicable years must be checked in the Income-tax Rules, 2026 and relevant notifications; section 167 itself does not prescribe a universal margin.

What is a safe harbour in transfer pricing?

A safe harbour is a statutory mechanism under which the income-tax authorities accept the price or income declared by an assessee when the applicable conditions are fulfilled. It can reduce disputes over benchmarking and provide greater certainty, but it is not a blanket exemption from transfer pricing compliance.

Section 167: Explanation of each sub-section

Section 167(1): Determinations subject to safe harbour rules

The determination of (a) income referred to in section 9(2), or (b) arm's length price under section 165 or section 166, is subject to safe harbour rules. Accordingly, the section addresses both specified income attributable to operations in India and transfer pricing determinations.

Section 167(2): Power of the Board

The Board may make rules for safe harbour. The detailed operation of the regime therefore depends on the applicable delegated rules, including the covered transactions, eligibility conditions, procedure and consequences of exercising an option.

Section 167(3): Statutory definition

For section 167, safe harbour means circumstances in which the income-tax authorities shall accept either (a) the transfer price declared by the assessee or (b) the income deemed to accrue or arise under section 9(2) as declared by the assessee.

Important distinction: The statute empowers rule-making and defines the concept. It does not itself guarantee acceptance of every related-party price or every amount of Indian-source income.

Relevant statutory terms and provisions

Arm's length price: Under section 173(a), a price applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.

Associated enterprise: Section 162 addresses enterprises connected through the management, control or capital relationships described in that provision.

International transaction: Section 163 sets out the covered cross-border dealings and deemed international transactions for transfer pricing purposes.

Specified domestic transaction: Section 164 identifies domestic transactions to which the transfer pricing framework applies.

Board: The Central Board of Direct Taxes, which exercises the rule-making power granted by section 167(2).

How do safe harbour rules work in practice?

Identify the transaction or income: Determine whether the case concerns a covered transfer pricing transaction or income under section 9(2).
Check the current rules: Confirm the applicable category, eligibility thresholds, prescribed conditions and tax year.
Evaluate the prescribed option: Follow any required election, form, time limit and documentation procedure.
Apply the prescribed standard: Use the applicable safe harbour rate or computation only if the rules permit it.
Retain supporting records: Preserve agreements, invoices, functional analysis and evidence supporting eligibility.

Illustrative example

An Indian service company provides qualifying services to an overseas associated enterprise. If the transaction and company satisfy the applicable safe harbour rules, and the company declares a price meeting the prescribed standard and validly follows the prescribed procedure, the authorities must accept that declared transfer price for the purpose covered by the rules. The applicable margin cannot be assumed without checking the relevant rules for that year.

Safe harbour rules versus advance pricing agreements

Section 167 concerns acceptance under generally applicable safe harbour rules. Section 168 separately provides for advance pricing agreements (APAs), which determine the arm's length price or its methodology, or certain income attributable to Indian operations, through an agreement with the Board subject to statutory conditions. The two mechanisms are distinct and should not be treated as interchangeable.

Relationship with other transfer pricing provisions

Sections 161, 162, 163, 165 and 166 set out the broader transfer pricing framework. Sections 171 and 172 deal with documentation and accountant reporting. Whether particular obligations continue to apply in a safe harbour case depends on the operative rules.

Frequently asked questions

Does Section 167 prescribe a fixed safe harbour margin?

No. It gives the Board authority to make rules. Any applicable rates or margins arise from the operative rules and notifications.

Is safe harbour automatic for all international transactions?

No. A taxpayer must satisfy the applicable eligibility and procedural requirements for the relevant category and tax year.

Does Section 167 cover income attributable to operations in India?

Yes. Section 167(1)(a) expressly refers to income under section 9(2), in addition to arm's length pricing under sections 165 and 166.

Which provision did Section 167 replace?

It corresponds to section 92CB of the Income-tax Act, 1961.

Official sources and further reading

Income-tax Act, 2025 - Gazette Income Tax Department - Act and Rules Income Tax e-Filing Portal

Last reviewed: 10 November 2026. This article is general legal information; verify current rules, notifications and facts before relying on a safe harbour position.