Rule 10AA: The Intra-Group Services Safe Harbour in India

Definition

Rule 10AA of the Income-tax Rules, 1962 is the Indian safe harbour for specified intra-group services — given effect by section 92CB as part of the 10TA–10TE service harbour regime (entered 2015). Where the transaction is an eligible intra-group service, the declared price at the prescribed circumstances is accepted as arm’s length without the comparables fight — the benchmark study is not the defence, the election is. The mechanics:

Element	The content
The eligible services	The specified intra-group services (the shared / support services rendered to the group — the service categories listed in the rule)
The circumstances	The prescribed margin / rate for the service (the cost-plus level or the cap, per the rule as amended — the current circumstances in the safe harbour guide)
The election	Form 3CEFA — the election to apply the safe harbour, filed before the return due date, on the documented basis (the service, the cost, the margin, the recipient’s benefit)
The effect	The price at the prescribed circumstances is the arm’s length price for the year of election — the TPO’s examination of that transaction’s price stands closed
The exit	The conditions (the service’s character, the margin, the documentation) failing in a year — the harbour is not elected for that year, and the ordinary s.92 examination applies

The strategy read (in the Rule 10AA & 10AB jurisdiction guide): the harbour trades the benchmark’s precision for the price’s certainty — where the benchmark’s range sits below the prescribed circumstance, the ordinary examination is cheaper than the election; where it sits above, the election is the ceiling the group prices at. The benchmark is run either way — it is the decision input, and it is the fallback where the harbour’s conditions are not met.

Example

An Indian SSC provides shared support services (IT operations, back-office) to its group companies, costed at a documented 5% cost-plus. The service is an eligible specified intra-group service under Rule 10AA, the cost pool is maintained, the benefit to each recipient is documented, and the prescribed circumstance for the service category is met — the group elects on Form 3CEFA before the return due date, and the 5% cost-plus is the accepted arm’s length price for the year: no comparables set, no range, no TPO price examination for that service line.

See also

• Rule 10AA & 10AB in India: conditions and strategy
• Safe harbour rules in India (Rule 10TD)
• Safe Harbour · Section 92 (s.92)

FAQ

Does Rule 10AA apply to the KPO services? The KPO / IT-enabled services tiering sits in Rule 10AB (the companion harbour, the tiered circumstances by the service’s value-added level); Rule 10AA is the specified intra-group services harbour. Both run under the section 92CB regime, with the election on Form 3CEFA.

What documentation does the election need? The service’s character (why it is the eligible specified service), the cost pool and the allocation, the margin computation against the prescribed circumstance, and the recipient’s benefit — maintained contemporaneously with the year (the contemporaneous documentation discipline applies to the harbour position as much as to the benchmarked one), because the election year’s file is what the authority examines when the election is tested.

Can the group opt out of the harbour where the benchmark is better? Yes — the election is the election: where the ordinary benchmark supports a more favourable price than the prescribed circumstance (for the service provider receiving the fee, a lower fee; for the service recipient paying it, a higher one), the group does not elect, and the s.92 examination runs on the benchmark. The benchmark is run either way to make that call.