Rule 101 — Procedure governing safe harbour rules for income attribution in case of income from business and profession. Made under s.263, s.265 of the Income-tax Act, 2025.
Rule 101 gives effect to Section 263 and Section 265 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) requires an assessee exercising the option for safe harbour to furnish Form No. 49, complete in all respects, to the Assessing Officer before furnishing the return of income under section 263 for the relevant tax year. Sub-rule (2) states the consequence of not exercising the option under rule 100(1): the income from the eligible business is then determined under the provisions of the Act without having regard to rule 100(2).
Sub-rules (3) to (5) give the Assessing Officer power to undo an option. He may declare the option invalid by an order in writing where the assessee has availed the safe harbour by furnishing incorrect facts, or has concealed facts related to his business. He must afford a reasonable opportunity of being heard before doing so, and must serve a copy of the order on the assessee, after which the other provisions of the Act apply accordingly.
Sub-rule (6) requires Form No. 49 to be furnished electronically either under digital signature or through electronic verification code, and to be verified by the person authorised to verify the return of income of the assessee under section 265.
The safe harbour for income attribution has to be claimed before the return that uses it, otherwise it becomes a position taken with hindsight. This rule fixes that sequence, names the officer who receives the option, and gives him a route to strike the option down where it rested on incorrect or concealed facts. Sub-rule (2) states the default that applies to anyone who simply does not opt.
The filing point here is different from the ordinary due date: sub-rule (1) requires Form No. 49 before furnishing the return of income under section 263 for that year, so a form filed with or after the return has missed the sequence. If no option is exercised, sub-rule (2) does not deny the income; it computes it under the Act without regard to rule 100(2), which is the attribution the safe harbour would have given. An option once made is not beyond recall by the Department, but the grounds are narrow and specific, incorrect facts or concealed facts related to the business, and sub-rules (4) and (5) require a hearing and a served written order before the option can be declared invalid.
A firm with income from an eligible business decides to use the safe harbour for a tax year. It files Form No. 49 with the Assessing Officer, electronically under electronic verification code and verified by the person who signs its return under section 265, before it furnishes the return for that year. Had it filed the form after the return, sub-rule (1) would not have been met, and its income would fall to be computed under sub-rule (2) without regard to rule 100(2).
You meet it as Form No. 49 filed with the Assessing Officer ahead of the return, and, in the unusual case, as a written order declaring the option invalid after a hearing.
the assessee shall furnish Form No. 49, complete in all respects, to the Assessing Officer before furnishing the return of income under section 263 for the relevant tax year
The Assessing Officer shall afford a reasonable opportunity of being heard to the assessee before declaring the option for safe harbour invalid under sub-rule (3).