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Rule 91Published

Rule 91: Five-year IT-services safe-harbour option

Rule 91 provides the separate safe-harbour procedure for eligible international IT-services transactions. A valid option continues for five consecutive tax years, with first-year threshold testing, electronic review, annual compliance and specific withdrawal restrictions.

Official notified Income-tax Rules, 2026

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Rule 91 - Procedure relating to transactions of provision of information technology services

(1) Where option for safe harbour is exercised in respect of eligible international transaction being provision of information technology services, such option for safe harbour, once exercised validly, shall continue to remain in force for a period of five consecutive tax years.

(2) For the purposes of safe harbour in respect of eligible international transaction referred to in sub-rule (1), the threshold of two thousand crore rupees of the aggregate operating revenue shall be tested for the first of the five consecutive tax years.

(3) For exercising option for safe harbour, the assessee shall furnish Form No. 49, complete in all respects, to the Director General of Income-tax (Systems) for the first of the five consecutive tax years for which option for safe harbour is proposed to be exercised on or before the due date of furnishing of return of income, as specified in section 263(1)(c), for the aforesaid first tax year.

(4) After furnishing of Form No. 49, verification in respect of the following shall be done electronically: — (a) the assessee exercising the option is an eligible assessee; (b) the transaction in respect of which the option is exercised is an eligible international transaction; and (c) the exercise of option is valid.

(5) After verification, the assessee shall be intimated within a period of two months from the end of the month in which the option for safe harbour is exercised, about the acceptance or the rejection of the option exercised, as the case may be.

(6) The option for exercise of safe harbour shall not be rejected unless the assessee is provided an opportunity to remove defects, if any, in the application filed.

(7) Where an option for safe harbour is rejected electronically, the assessee shall be provided reasons for the same.

(8) Where an option for safe harbour is accepted, the assessee shall furnish return of income in accordance with the safe harbour provisions for each of the five consecutive tax years on or before the due date specified in section 263(1)(c).

(9) The option shall not remain in force in respect of any tax year, if the assessee withdraws the option for safe harbour, by furnishing a declaration to that effect.

(10) The withdrawal of option referred to in sub-rule (9) shall not be made after the expiry of six months from the end of the first tax year.

(11) Where the assessee withdraws the option for safe harbour by furnishing a declaration referred to in sub-rule (9) the option shall not remain in force for tax year for which assessee has withdrawn the option and for subsequent tax years.

(12) Where an assessee withdraws the option for safe harbour, he shall not be eligible to again exercise the option for safe harbour upto the period of expiry of five consecutive tax years referred to in sub-rule (1).

(13) The assessee shall, in respect of each of the four consecutive tax years following the first tax year, furnish a statement on or before the due date of furnishing return of income of that tax year as specified in section 263(1)(c), providing details of eligible transactions, their quantum and profit margins.

(14) The Assessing Officer may make a reference under section 166 in respect of international transaction other than the eligible international transaction.

(15) Form No. 49 shall be furnished electronically either under digital signature or through electronic verification code.

(16) Form No. 49 shall be certified by the chief executive officer or chairman and managing director of the assessee and verified by the person who is authorised to verify the return of income of the assessee under section 265.

(17) The Director General of Income-tax (Systems) shall, with the approval of the Board, lay down the data structure, standards, format and procedure of furnishing and verification of such Forms, statements, order, declaration, including any modification, if required.

Rule breakdown

The five-year period and first-year threshold

The valid option remains in force for five consecutive tax years. The ₹2,000 crore aggregate-operating-revenue threshold is tested for the first of those five years.

Continue checking the applicable eligible-assessee, transaction and pricing conditions; the first-year revenue test does not excuse the other requirements.

Submit Form 49 to the specified authority

For the first year, furnish complete Form 49 to the Director General of Income-tax (Systems) by the stated return due date. The notified text refers to section 263(1)(c); verify the applicable current Act date and any valid extension.

The form is electronic, using digital signature or electronic verification code. It must be certified by the CEO or chairman and managing director and verified by the person authorised under section 265.

Electronic review and the opportunity to cure defects

Eligibility of the assessee and transaction and validity of the option are checked electronically. Acceptance or rejection is to be communicated within two months from the end of the month of exercise.

The option cannot be rejected without an opportunity to remove application defects, and electronic rejection must give reasons. Retain communications and respond to defect requests.

Annual returns and the four following-year statements

For each of the five years, furnish the return in accordance with safe harbour by the stated due date. In each of the four years after the first, also furnish the statement of eligible transactions, amounts and profit margins by that year’s specified return deadline.

Build a five-year calendar: the initial option and subsequent annual statements are distinct compliance steps.

Withdrawal has a narrow time limit and lasting effect

Withdrawal is by declaration. Sub-rule (10) states that it cannot be made after six months from the end of the first tax year. Check this precise first-year limit before relying on a withdrawal plan.

Withdrawal stops the option for the year withdrawn and subsequent years, and the assessee cannot opt again until the original five-year period expires. Do not assume an annual free exit and re-entry.

Other transactions remain separately reviewable

The AO can refer international transactions other than the eligible transaction under section 166. Keep the safe-harbour transaction scope clear in the books and supporting file.

Retain underlying transfer-pricing documentation and reports required by the wider framework alongside the option and annual statements.

Key takeaways

Five consecutive years

A valid IT-services option has its own multi-year period.

First-year revenue test

The ₹2,000 crore test is applied to the first year.

Annual statements continue

The following four years each require the specified statement.

Withdrawal is restricted

The rule has a first-year deadline and no re-entry until the period ends.

Practical checklist

  • Check first-year eligibility and the revenue threshold.
  • Arrange required certification and electronic verification.
  • Track all five return deadlines and four annual statements.
  • Review the exact withdrawal deadline before acting.

Avoid

  • Do not assume option acceptance replaces annual compliance.
  • Do not assume withdrawal permits immediate re-entry.

FAQs

Is the ₹2,000 crore threshold tested every year under Rule 91(2)?

That sub-rule specifies testing in the first of the five consecutive years.

Can an electronic application be rejected without a chance to cure defects?

Sub-rule (6) requires an opportunity to remove application defects.

Can the assessee withdraw and re-enter the next year?

The rule bars a fresh option until the original five-year period expires after withdrawal.

Does a five-year option remove annual statements?

No. Sub-rule (13) requires a statement for each of the four following tax years.

Glossary

Five-year option
The consecutive-tax-year period specified by sub-rule (1) for eligible IT-services transactions.
Following-year statement
The annual transaction, quantum and margin statement required by sub-rule (13).

Official sources