Amendments to Income Tax Rules: New Safe Harbor Provisions for Raw Diamond Businesses [Read Notification]

The Central Board of Direct Taxes ( CBDT ), under the Ministry of Finance, issued Notification No. 124/2024 on November 29, 2024, amending the Income Tax Rules, 1962. These amendments, titled the Income-tax (Tenth Amendment) Rules, 2024, are retrospectively effective from April 1, 2024. The amendment is particularly aimed at businesses dealing with raw diamond trading.

Safe Harbor Rules Extended

Safe Harbor Rules (SHR) under Rule 10TD have been extended to include the assessment year 2024-25.

“in rule 10TD, in sub-rule (3B), for the words and figures “assessment years 2020-21, 2021-22, 2022-23 and 2023-24”, the words and figures “assessment years 2020-21, 2021-22, 2022-23, 2023-24 and 2024 25” shall be substituted”

Become a PF & ESIC expert with our comprehensive course - Enroll Now

New Rules After Rule 10THD

Safe Harbour Rules are for income mentioned in section 9(1)(i) of the Income Tax Act, which is taxed under “Profits and gains of business or profession.” The notification adds new rules focusing on raw diamond businesses. These rules clarify and relieve eligible taxpayers by offering a standard flow to determine tax liability.

Definition of Important Terms

(a) “eligible assessee” means a foreign company engaged in the business of diamond mining which has exercised an option for application of safe harbour rules in accordance with rule 10TIA;

(b) “eligible business” means a business of selling raw diamonds in any notified special zone as referred to in clause (e) of Explanation 1 to clause (i) of sub-section (1) of section 9;

(c) “gross receipts” means the aggregate of: (i) the amount paid or payable to the eligible assessee or to any person on his behalf on account of sale of raw diamonds by such eligible assessee; and (ii) the amount received or deemed to be received by the eligible assessee or by any person on his behalf on account of sale of raw diamonds by such eligible assessee;

Become a PF & ESIC expert with our comprehensive course - Enroll Now

(d) "relevant previous year" means the previous year relevant to the assessment year in which the option for safe harbour is exercised;

(e) “raw diamonds” means diamonds that are,– (i) uncut or unpolished; (ii) unassorted; (iii) unworked or simply sawn, cleaved or bruted; (iv) not conflict diamonds as defined by the Kimberley Process; (v) accompanied by Kimberley Process Certificate issued by the Kimberley Process authority in the exporting country; and (vi) falling under Tariff Heading 7102 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

Safe Harbor - Rule 10TIA

The income tax authorities will accept the safe harbor option chosen by an eligible assessee (a foreign company engaged in diamond mining) for any relevant previous year under rule 10TIB, as long as the income declared from the eligible business meets the conditions specified in sub-rule (2). This acceptance stands unless the safe harbor is declared invalid under sub-rule (3) of rule 10TIB.

Become a PF & ESIC expert with our comprehensive course - Enroll Now

The conditions mentioned in sub-rule (1) for the eligible business (selling raw diamonds) are detailed in the table. The profits and gains from this business, chargeable to tax under “Profits and gains of business or profession,” must be 4% or more of the gross receipts from such business.

TABLE

Eligible Business	Circumstances
Selling of raw diamonds referred to in clause (b) of rule 10TI.	The profits and gains of the eligible business chargeable to tax under the head “Profits and gains of business or profession” shall be 4 per cent. or more of the gross receipts from such business.

Effects of Exercising Safe Harbour Option:

When a business opts for the Safe Harbor Rules (SHR) under Rule 10TIB and the choice is valid (not declared invalid by tax authorities), the following applies:

Deductions (Sections 30 to 38): All deductions allowed under these sections are treated as already given. The business cannot claim these deductions again.

Asset Value and Depreciation: The value of any business assets will be considered as if depreciation was already claimed and allowed. No additional depreciation for those assets can be claimed.

Losses (Carry Forward or Set Off): The business cannot use unabsorbed depreciation (unused depreciation from previous years) or carried forward losses from earlier years to reduce taxable income. Losses from other businesses or income heads cannot be set off against the income from the Safe Harbor business.

Become a PF & ESIC expert with our comprehensive course - Enroll Now

If the business engages in international transactions as defined in Section 92B, it must comply with rules for maintaining documentation (Section 92D) and filing transfer pricing reports (Section 92E).

Procedure - Rule 10TIB

1. To opt for Safe Harbor, the business (assessee) must submit Form No. 3CEFC to the Assessing Officer before filing its tax return for the relevant year (under Section 139).
2. If the business doesn’t choose Safe Harbor, its income will be calculated using regular tax rules, ignoring the simplified Safe Harbor provisions.
3. The Assessing Officer can declare the Safe Harbor option invalid in writing if: a) The business provided incorrect information. b) The business hid important facts about its operations.
4. Before declaring the option invalid, the Assessing Officer must give the business a chance to explain or present its case. If the option is invalidated, the Assessing Officer will issue a written order to the business.
5. After this, the normal tax provisions will apply to the business.

No Mutual Agreement Procedure (MAP) for Safe Harbor Businesses - Rule 10TIC

If a business chooses the Safe Harbor Rules (SHR) under Rule 10TIB and the option remains valid, it cannot use the Mutual Agreement Procedure (MAP). MAP is typically used to resolve disputes related to double taxation under agreements mentioned in Section 90 or 90A of the Income-tax Act. This option is not available for businesses under SHR.

Become a PF & ESIC expert with our comprehensive course - Enroll Now

FORM NO: 3CEFC

[See sub-rule (1) of rule 10TIA]
[e-Form]
Application for opting for safe harbour for income referred to in clause (i) of sub-section (1) of section 9 chargeable to tax under the head “Profits and gains of business or profession”

To,
The Assessing Officer
[.............................................]

Sir/Madam,

I propose to opt for the safe harbour rules under section 92CB of the Income-tax Act, 1961(43 of 1961) read with rules 10TI to 10TIC of the Income-tax Rules, 1962. In this regard, the particulars are as under:

1. General:

(a) Full name of the assessee:
(b) Permanent Account Number:
(c) Address of the assessee:
(d) Nature of business or activities of the assessee:
(e) Status:
(f) Assessment Year:

2. Eligible Business:

Sl. No.	Particulars in respect of eligible business	Remarks
1	Whether the assessee is an eligible assessee as referred to in clause (a) of rule 10TI?	Yes/No
2	Whether the assessee is carrying on the eligible business of selling of raw diamonds as referred to in clause (b) of rule 10TI?	Yes/No
3	If reply to question at Sl. No. (1) and (2) is yes, provide the following details: (a) Description of the eligible business. (b) Gross receipts of the eligible business. (c) 4% of the gross receipts referred to in item (b) above. (d) Whether the assessee is carrying on any other business other than the eligible business of selling of raw diamonds. (e) If reply to item (d) referred above is yes, description of such other business(es). (f) Profits of such other business chargeable to tax under the head “Profits and gains of business or profession.”

I declare that the information furnished herein is correct and truly stated.

Place: .................................
Date: .................................

Yours faithfully,

[........................................]
Signature
[........................................]
Name
[........................................]
Designation/Capacity
[........................................]
Address

Note:
The application shall be verified by the person authorized to verify the return of income under section 140.

To Read the full text of the Notification CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates