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Rule 99: Business income safe harbour eligibility

Rule 99 defines the foreign-company businesses that may use the income-attribution safe harbour in Rules 100–102. It covers qualifying raw-diamond sales and specified electronic-component warehouse activity. Separate conditional Act exemptions effective from 1 October 2026 must also be checked before applying the safe harbour.

Official notified Income-tax Rules, 2026

Need advice on Rule 99?

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.

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Rule 99 - Definitions for safe harbour rules for income attribution in case of income from business and profession

For the purposes of this rule and rules 100 to 102, —

(a) "contract manufacturer" means an Indian company who produces specified electronic goods on behalf of any foreign company in a custom bonded area;

(b) "custom bonded area" means a warehouse as referred to in section 65 of the Customs Act, 1962;

(c) "eligible assessee" means — (i) 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 100; or (ii) a foreign company which stores components in a warehouse in a custom bonded area for providing them to a contract manufacturer to be used for manufacturing of specified electronic goods;

(d) "eligible business" means — (i) a business of selling raw diamonds in any notified special zone as referred under section 9(9)(c)(ii)(C); or (ii) the business activity of storage of components in a warehouse in a custom bonded area for sale to a contract manufacturer to be used for manufacturing of specified electronic goods;

(e) "gross receipts" means, — (i) in a case referred to clause (d)(i), the aggregate of — (A) 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 (B) 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; (ii) in a case referred to clause (d)(ii), the aggregate of — (A) the amount paid or payable to the eligible assessee or to any person on his behalf on account of sale of components in a warehouse in a custom bonded area to the contract manufacturer to be used for manufacturing of specified electronic goods; and (B) the amount received or deemed to be received by the eligible assessee or by any person on his behalf on account of sale of components in a warehouse in a custom bonded area to the contract manufacturer to be used for manufacturing of specified electronic goods;

(f) "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);

(g) "relevant tax year" means the tax year in which the option for safe harbour is exercised;

(h) "specified electronic goods" shall mean — (i) mobile phones; or (ii) laptops, all-in-one personal computers and tablets; or (iii) servers and ultra small form factor (USSF); or (iv) sub-assemblies to the finished goods mentioned in clause (i) to (iii); or (v) hearables and wearables and accessories related to the finished goods mentioned in clause (i) to (iii).

Introduction

The safe harbour definitions and the current exemption conditions answer different questions. Preserve that distinction: a foreign-company category covered by the new exemption is not automatically added to Rule 99’s eligible-assessee definition.

Rule breakdown

Current Act exemptions: a separate first check from 1 October 2026

From 1 October 2026, Schedule IV entries 13F and 13G of the Income-tax Act provide separate conditional exemptions for the specified rough-diamond sale income and component-storage income available on sale of components. Check those current Act provisions before choosing this income-attribution safe harbour. The new exemptions do not amend the quoted Rules 99–102 or automatically make every diamond or warehouse receipt exempt.

Entry 13F covers the specified foreign-company categories: a diamond-mining company, its sightholder, or a broker, aggregator or tender-and-auction entity connected with rough-diamond sales. The sale must occur in the stated notified special zone, and the company must maintain and furnish the prescribed information. Note 5 defines rough diamonds by the stated physical characteristics, tariff headings 7102 10, 7102 21 or 7102 31, and Kimberley Process Certificate. These exemption categories are not the same as Rule 99’s narrower diamond-mining safe harbour eligibility.

Entry 13G concerns the specified foreign company storing components in a warehouse in a custom bonded area for a contract manufacturer to make specified electronic goods. The exemption is available on sale of those components; the contract manufacturer must produce the goods on behalf of any foreign company, and the prescribed information must be furnished. Note 6 defines the Indian-company contract manufacturer and the section 65 Customs Act warehouse, and imports the specified electronic goods from Note 2A.

Both new entries are effective from 1 October 2026 and state availability up to the tax year ending 31 March 2041, subject to their conditions. Keep the effective date, receipt or transaction facts and required information under review. Form 49 is a safe harbour option form; do not assume it also satisfies the separate exemption’s prescribed-information requirement.

Raw-diamond business: check both assessee and transaction

Confirm the foreign company’s diamond-mining business and the relevant safe harbour option. The eligible business is selling raw diamonds in the notified special zone referred to in section 9(9)(c)(ii)(C).

Check all six raw-diamond conditions, including the non-conflict requirement, the exporting-country Kimberley Process Certificate and tariff classification. Do not rely on the word “raw” alone.

Electronic components: map the whole supply chain

The contract manufacturer is an Indian company producing specified electronic goods for a foreign company in a custom bonded area. The area is a warehouse referred to in section 65 of the Customs Act. Trace the foreign company’s stored components through sale or provision to the contract manufacturer and use in manufacturing the listed goods.

Which electronic goods are listed

The list includes mobile phones; laptops, all-in-one personal computers and tablets; servers and USSF; sub-assemblies to those finished goods; and the specified related hearables, wearables and accessories. Match the actual component use to the wording instead of treating all electronics as covered.

Gross-receipt working papers

Reconcile the rule’s paid/payable and received/deemed-received limbs to sales contracts, warehouse records, invoices and accounts, including receipts through another person. Use the statutory definition as the starting point for the Rule 100 percentage calculation and obtain advice on any reconciliation issue.

What happens after eligibility is established

Rule 100 specifies the minimum profits and deduction consequences. Rule 101 governs Form 49 and validity, and Rule 102 restricts use of the mutual agreement procedure for the eligible business when the option is valid.

Key takeaways

Current exemption check first

Schedule IV entries 13F and 13G provide separate conditional exemptions from 1 October 2026; they do not change this rule’s quoted text.

Foreign-company eligibility

The diamond limb requires a foreign company engaged in diamond mining; the component limb specifies a foreign company’s storage and supply arrangement.

Defined businesses and goods

Diamond sales require the notified special zone; components must be for a defined contract manufacturer and specified electronic goods.

Gross receipts are defined

The rule covers the specified paid/payable and received/deemed-received amounts, including those through another person on the assessee’s behalf.

Raw diamonds have multiple conditions

The definition includes physical characteristics, Kimberley Process safeguards and Tariff Heading 7102.

Practical checklist

  • Check current Schedule IV entries 13F and 13G, their effective date and prescribed-information conditions before choosing safe harbour.
  • Document foreign-company status and the qualifying business.
  • Retain zone/warehouse evidence, contracts and goods classifications.
  • Keep Kimberley certificates and provenance records for raw diamonds.
  • Prepare an auditable gross-receipt reconciliation.

Avoid

  • Do not apply the margins to every diamond trader or electronics warehouse.
  • Do not ignore the contract-manufacturer and end-use conditions.

FAQs

Is any foreign diamond seller an eligible assessee?

No. The diamond limb requires a foreign company engaged in diamond mining and the stated option; the business must also meet the notified-zone and raw-diamond definitions.

Does the component limb cover all electronic goods?

No. The specified electronic goods are the categories listed in clause (h), including its related sub-assembly and accessory categories.

Are the Rule 100 percentages income-tax rates?

No. They are minimum profits and gains as a share of the defined gross receipts, subject to the full framework.

Does the October 2026 amendment make every diamond or component-storage receipt exempt?

No. The separate Schedule IV exemptions have defined taxpayer, transaction, goods, information and timing conditions. Assess them independently of the unchanged safe harbour rules.

Official sources

Related rules