Rule 97: Domestic safe harbour pricing conditions
Rule 97 accepts the transfer price of an eligible specified domestic transaction when the safe harbour option is valid and the transaction meets the table’s pricing conditions. Electricity uses the prescribed regulatory tariff basis; milk pricing uses quality measures with additional equality and transparency conditions.
Official notified Income-tax Rules, 2026Need advice on Rule 97?
This article is for general information. Read the official Rules and applicable Act amendments, including the Taxation and Other Laws (Amendment) Act, 2026. If you need professional advice for your situation, contact Bizeneed.
On this page
Bare law
Rule 97 - Safe harbour for eligible specified domestic transaction
(1) The transfer price declared by an eligible assessee in respect of an eligible specified domestic transaction for a tax year shall be accepted by the income-tax authorities, if, — (a) the option exercised by the said assessee is treated to be validly exercised under rule 98; and (b) it is in accordance with the circumstances as specified in sub-rule (2).
(2) The circumstances referred to in sub-rule (1) in respect of the eligible specified domestic transaction specified in column B of the following Table shall be as specified in column C thereof:
Sl. No. (A) Eligible specified domestic transaction (B) Circumstances (C) 1. Supply of electricity, transmission of electricity, wheeling of electricity, as the case may be. The tariff in respect of supply of electricity, transmission of electricity, wheeling of electricity, as the case may be, is determined or the methodology for determination of the tariff is approved by the Appropriate Commission in accordance with the provisions of the Electricity Act, 2003 (36 of 2003). 2. Purchase of milk or milk products. The price of milk or milk products is determined at a rate which is fixed on the basis of the quality of milk, namely, fat content and Solid Not Fat (SNF) content of milk and — (a) the said rate is irrespective of — (i) the quantity of milk procured; or (ii) the percentage of shares held by the members in the cooperative society; or (iii) the voting power held by the members in the society; and (b) such rates are routinely declared by the co-operative society in a transparent manner and are available in public domain. (3) No comparability adjustment and allowance under section 165(3)(a)(ii) shall be made to the transfer price declared by the eligible assessee and accepted under sub-rule (1).
(4) The provisions of sections 171 and 172 in respect of a specified domestic transaction shall apply irrespective of the fact that the assessee exercises his option for safe harbour in respect of such transaction.
Introduction
This safe harbour does not prescribe a universal profit percentage. The two table rows use different pricing standards, so the underlying tariff or milk-rate evidence is central to the claim.
Rule breakdown
Electricity: identify the applicable regulatory decision
Keep the Commission’s tariff determination or approved methodology and demonstrate that it covers the relevant supply, transmission or wheeling transaction. A general regulatory licence is not the pricing evidence described in the table.
Milk: apply all conditions together
Record the quality parameters used to set the rate, including fat content and Solid Not Fat content. Confirm that quantity procured, member shareholding and member voting power do not alter that rate.
Retain the publicly available rate declarations and explain how they were routinely disclosed. A quality-based calculation without the equality and public-disclosure conditions is incomplete.
After acceptance: adjustments and compliance
Sub-rule (3) excludes comparability adjustments and the section 165(3)(a)(ii) allowance for the accepted price. Sub-rule (4) expressly preserves the section 171 information/documentation and section 172 reporting requirements.
Illustrative milk-rate review
If two member suppliers have milk with the same relevant quality characteristics, a rate difference based solely on their shareholding would conflict with the table’s independence condition. Review the full pricing system and underlying evidence before deciding eligibility.
Key takeaways
Electricity tariff evidence
The tariff must be determined, or its determination methodology approved, by the Appropriate Commission under the Electricity Act.
Milk price safeguards
The rate is quality-based using fat and SNF, independent of quantity, member shareholding and voting power, and routinely disclosed transparently in the public domain.
No extra pricing adjustment
No comparability adjustment or allowance under section 165(3)(a)(ii) is made to a price accepted under sub-rule (1).
Documentation duties continue
Sections 171 and 172 remain applicable despite the safe harbour option.
Practical checklist
- Retain the regulatory tariff order or approved methodology.
- Document milk quality, rate-setting and public disclosures.
- Maintain the Act’s required information and reporting records.
Avoid
- Do not add a further tolerance allowance to an accepted safe harbour price.
- Do not treat the option as an exemption from sections 171 and 172.
FAQs
Is there a flat safe harbour profit percentage in Rule 97?
No. Its two rows prescribe electricity tariff conditions and milk-price conditions, rather than a common profit percentage.
Can milk prices vary according to member shareholding?
The rate described in the table must be independent of the percentage of shares held by members, as well as quantity procured and voting power.
Do transfer-pricing documentation and reporting still apply?
Yes. Rule 97(4) expressly retains sections 171 and 172 for a specified domestic transaction.