Procedure relating to transactions of provision of information technology services

Duration and test (sub-rules 1 and 2). A validly exercised option stays in force for five consecutive tax years. The two thousand crore rupee ceiling on aggregate operating revenue in rule 89 is tested for the first of the five years.

Exercising and verification (sub-rules 3 to 7). The assessee furnishes Form No. 49, complete in all respects, to the Director General of Income-tax (Systems) for the first of the five years, on or before the return due date under section 263(1)(c) for that year. Verification is done electronically — whether the assessee and the transaction are eligible and the option is valid — and the assessee is told within two months from the end of the month the option is exercised whether it is accepted or rejected. The option is not rejected without a chance to remove defects, and rejection comes with reasons.

After acceptance (sub-rules 8 to 13). The assessee files the return in line with the safe harbour for each of the five years by the section 263(1)(c) due date. The option can be withdrawn by a declaration, but not after six months from the end of the first tax year; once withdrawn it does not apply for that year or later years, and the assessee cannot opt again until the five years expire. For each of the four years after the first, a statement of the eligible transactions, their quantum and profit margins is furnished by the return due date.

Other points (sub-rules 14 to 17). The Assessing Officer may make a reference under section 166 for international transactions that are not eligible. Form No. 49 is furnished electronically under digital signature or electronic verification code, certified by the chief executive officer or the chairman and managing director, and verified by the person authorised to verify the return under section 265. The Director General of Income-tax (Systems), with the Board's approval, lays down the data structure, standards, format and procedure.