Rule 98 — Procedure governing safe harbour rules for specified domestic transactions. Made under s.263, s.265, s.166 of the Income-tax Act, 2025.
Rule 98 gives effect to Section 263, Section 265 and Section 166 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) sets the two steps for exercising the safe harbour option for a specified domestic transaction: the assessee must furnish Form No. 49, complete in all respects, to the Assessing Officer on or before the due date specified in section 263(1)(c) for furnishing the return of income for the relevant tax year, and the return of income for that year must be furnished on or before the date of furnishing Form No. 49.
Sub-rule (2) requires the Assessing Officer, on receipt of Form No. 49, to verify that the assessee is an eligible assessee and that the transaction is an eligible specified domestic transaction before the option is treated as validly exercised. Sub-rule (3) lets him, where he doubts the valid exercise of the option, require the assessee by notice in writing to furnish such information, documents or other evidence as he considers necessary, which the assessee shall furnish within the time specified in the notice.
Sub-rule (4) lists four grounds on which he shall, by order in writing and after giving a reasonable opportunity of being heard, declare the option invalid and serve a copy of the order — failure to furnish what was called for under sub-rule (3), a finding that the assessee is not an eligible assessee, a finding that the transaction is not an eligible specified domestic transaction, or the tariff not being in accordance with the circumstances specified under rule 97.
Sub-rule (5) gives the assessee fifteen days from receipt of that order to file objections with the Principal Commissioner or Commissioner to whom the Assessing Officer is subordinate. Sub-rule (6) requires that authority, after a reasonable opportunity of being heard, to pass appropriate orders on the validity of the option and to serve a copy on the assessee and the Assessing Officer.
Sub-rule (7) sets both outer limits: no order under sub-rule (4) after three months from the end of the month in which Form No. 49 is received, and the order under sub-rule (6) within two months from the end of the month in which the objection is received. Sub-rule (8) provides that if either order is not passed within its time, the option shall be treated as valid.
Sub-rule (9) requires Form No. 49 to be furnished electronically, either under digital signature or through electronic verification code, verified by the person authorised to verify the return of income under section 265. Sub-rule (10) preserves the Assessing Officer's power to make a reference under section 166 in respect of a specified domestic transaction other than the eligible specified domestic transaction.
A safe harbour is worth having only if the assessee knows quickly whether the option has taken effect. The scheme itself says what may be opted for; this rule says how the option is made, who tests it, on what grounds it can be rejected, and how long the Department has to say so. The time limits in sub-rule (7), backed by the deeming in sub-rule (8), are the heart of it: silence past the limit is acceptance, so the certainty the safe harbour promises cannot be defeated by inaction.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Last date for furnishing Form No. 49 | On or before the due date specified in section 263(1)(c) for furnishing the return of income for the relevant tax year | The rule fixes the date by reference to section 263(1)(c) and states no date of its own | Sub-rule (1)(a) |
| Latest date for furnishing the return of income | On or before the date of furnishing of Form No. 49 | The return must not be later than the Form | Sub-rule (1)(b) |
| Time to file objections against an invalidity order | Within fifteen days of receipt of the order of the Assessing Officer | Objections filed with the Principal Commissioner or Commissioner to whom the Assessing Officer is subordinate | Sub-rule (5) |
| Outer limit for the Assessing Officer's order declaring the option invalid | Three months from the end of the month in which Form No. 49 is received by him | No order under sub-rule (4) may be made after this period | Sub-rule (7)(a) |
| Outer limit for the Principal Commissioner's or Commissioner's order on objections | Two months from the end of the month in which the objection is received by him | For the order under sub-rule (6) | Sub-rule (7)(b) |
Sequence matters as much as date. Form No. 49 must reach the Assessing Officer by the section 263(1)(c) due date, and the return must not be later than the Form — so filing the Form first and the return afterwards breaks sub-rule (1)(b) even if both are within the due date. Once the Form is in, time runs against the Department: an order declaring the option invalid cannot be made after three months from the end of the month of receipt, an order on objections must come within two months from the end of the month of receipt, and sub-rule (8) turns a missed limit into a valid option. The invalidity order is not summary — sub-rule (4) requires a written order and a reasonable opportunity of being heard, and sub-rule (5) gives fifteen days to object. Finally, a valid safe harbour option on the eligible transaction does not immunise the rest: sub-rule (10) leaves the Assessing Officer free to make a section 166 reference on any other specified domestic transaction.
A firm furnishes Form No. 49 electronically on 20 September, having filed its return on 15 September, so both limbs of sub-rule (1) are met. The Assessing Officer doubts eligibility and issues a notice under sub-rule (3), but passes no order by 31 December, being three months from the end of September. Under sub-rule (8) the option for safe harbour is treated as valid. Had he passed an invalidity order on 10 December, the firm would have had fifteen days from receipt to object to the Principal Commissioner, who would then have had two months from the end of the month of receipt to decide.
A reader meets this rule at the time of filing, in Form No. 49 and its electronic verification, and thereafter in any notice under sub-rule (3), any order declaring the option invalid, and the objection proceedings before the Principal Commissioner or Commissioner.
the assessee shall furnish Form No. 49, complete in all respects, to the Assessing Officer on or before the due date specified in section 263(1)(c) for furnishing the return of income for the relevant tax year
If the Assessing Officer or the Principal Commissioner or the Commissioner, as the case may be, does not pass an order within the time specified under sub-rule (7), then the option for safe harbour exercised by the assessee shall be treated as valid.