Rule 89 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 89 is the rule that sets the numbers. If an eligible assessee declares a transfer price that meets the circumstances in the nine-row Table in sub-rule (2), and the rule 90 option is not held invalid, the income-tax authorities accept that price. This article reads the rule as per the Income-tax Rules, 2026 (G.S.R. 198(E), notified on 20 March 2026), read with the amending notifications issued up to 22 September 2026. Later notifications should be checked.
Rule 89 accepts the declared transfer price if the option under rule 90 stands and the Table row is met: for example an operating profit margin of not less than 15.5% on information technology services up to two thousand crore rupees of operating revenue, or a guarantee commission of not less than 1% per annum of the amount covered by the guarantee. The rule runs for a block period of three tax years from 2026-2027 and allows no comparability adjustment.
Where the rule sits
Rule 89 belongs to the safe harbour group made for section 167 of the Income-tax Act, 2025; see our article on sections 167 to 169 on safe harbour rules and advance pricing agreements. It cross-refers to section 165(3)(a)(ii) on comparability adjustment (section 165 on arm's length price) and to sections 171 and 172 (transfer pricing documents and accountant's report). The terms used here are defined in rule 86, and the eligible assessee and eligible transactions are in rules 87 and 88. The overall picture is in the overview of rules 86 to 93.
Rule 89 names no form. If you are checking whether a margin or spread is within the Table before a transaction is priced, our tax planning advisory team can run the check against the rule.
Sub-rule (1): acceptance
The transfer price declared by an eligible assessee for an eligible international transaction for a tax year shall be accepted by the income-tax authorities if (a) the option exercised is not held to be invalid under rule 90, and (b) it is in accordance with the circumstances in sub-rule (2).
Sub-rule (2): the Table
The Table has three columns: serial number (A), eligible international transaction (B) and circumstances (C). The rows read as follows.
| Serial number | Eligible international transaction | Circumstances |
|---|---|---|
| 1 | Provision of information technology services | Operating profit margin declared, in relation to operating expense incurred, not less than 15.5%, where the aggregate operating revenue of the transaction in the tax year does not exceed two thousand crore rupees |
| 4 | Providing corporate guarantee | Commission or fee declared at a rate not less than 1% per annum on the amount covered by the guarantee |
| 5 | Contract research and development services, wholly or partly, relating to generic pharmaceutical drugs | Operating profit margin not less than 24%, where the aggregate operating revenue does not exceed three hundred crore rupees |
| 6 | Manufacture and export of core auto components | Operating profit margin not less than 12% |
| 7 | Manufacture and export of non-core auto components | Operating profit margin not less than 8.5% |
| 8 | Receipt of low value-adding intra-group services | The aggregate amount of the services in the tax year, including a mark-up not exceeding 5%, does not exceed ten crore rupees, and the cost pooling method, the exclusion of shareholder and duplicate costs from the pool and the reasonableness of the allocation keys are certified by an accountant |
| 9 | Provision of the data centre services | Operating profit margin not less than 15% |
Rows 2 and 3, on intra-group loans, are in the next two tables because they run to several rates. The operating profit margin is always measured in relation to operating expense, as defined in rule 86.
Row 2: loans denominated in Indian rupees
The interest rate declared for the loan entered into during the tax year must be not less than the one-year marginal cost of funds lending rate of State Bank of India as on 1 April of the relevant tax year, plus:
| Credit rating of the associated enterprise | Basis points to add |
|---|---|
| AAA to A or equivalent | 175 |
| BBB-, BBB or BBB+ or equivalent | 325 |
| BB to B or equivalent | 475 |
| C to D or equivalent | 625 |
| Rating not available, and the aggregate rupee loans to all associated enterprises do not exceed one hundred crore rupees as on 31 March of the relevant tax year | 425 |
Row 3: loans denominated in foreign currency
The interest rate declared must be not less than the reference rate of the relevant foreign currency as on 30 September of the relevant tax year, plus the spread below. The spread depends on the aggregate amount of loans to all associated enterprises as on 31 March of the relevant tax year, measured against a sum equivalent to two hundred and fifty crore rupees.
| Credit rating of the associated enterprise | Aggregate loans up to 250 crore rupees equivalent | Aggregate loans above 250 crore rupees equivalent |
|---|---|---|
| AAA, AA+, AA, AA-, A+, A, A- or equivalent | 150 basis points | 150 basis points |
| BBB+, BBB, BBB- or equivalent | 300 basis points | 300 basis points |
| BB+, BB, BB-, B+, B, B- or equivalent | 400 basis points | 450 basis points |
| C+, C, C-, D or equivalent | 400 basis points | 600 basis points |
| Rating not available | 400 basis points | 600 basis points |
Sub-rule (3): reference rate and credit rating
"Reference rate" means, for each currency, the six-month benchmark below.
| Currency | Benchmark named in the rule | Addition |
|---|---|---|
| US dollar | 6-month Term Secured Overnight Financing Rate (SOFR), administered by Chicago Mercantile Exchange | plus 45 basis points |
| Euro | 6-month Euro Inter Bank Offered Rate (EURIBOR), administered by European Money Markets Institute | none stated |
| UK pound sterling | 6-month Term Sterling Overnight Index Average (SONIA), administered by ICE Benchmark Administration or Refinitiv | plus 30 basis points |
| Japanese yen | the 6-month Tokyo term benchmark rate (TORF) named in the rule, benchmarked by QUICK Benchmarks Inc | plus 10 basis points |
| Australian dollar | 6-month Bank Bill Swap Rates (BBSW), administered by Australian Securities Exchange | none stated |
| Singapore dollar | 6-month Compounded Singapore Overnight Rate Average (SORA), administered by Monetary Authority of Singapore | plus 45 basis points |
"Credit rating" means the rating assigned to the associated enterprise by a Securities and Exchange Board of India registered and Reserve Bank of India accredited credit rating agency, applicable for the relevant tax year. With one rating, that rating is taken; with ratings from more than one such agency, the least of them is taken. Those regulators and agencies are governed by their own laws, which the reader should check.
Sub-rules (4) to (6)
- Block period (4). Sub-rules (1) and (2) apply for a block period of three tax years commencing from the tax year 2026-2027 and continue for later block periods, unless modified.
- No comparability adjustment (5). No comparability adjustment and allowance under section 165(3)(a)(ii) is made to a transfer price declared by the eligible assessee and accepted under sub-rules (1) and (2).
- Sections 171 and 172 continue (6). These sections apply to an international transaction even if the assessee opts for safe harbour for it. Documentation and the accountant's report duties therefore remain.
Example. Riverbend Software Private Limited (invented) provides information technology services to its overseas parent with aggregate operating revenue in the tax year below the two thousand crore rupee ceiling, and has a valid option under rule 90. Row 1 is met if the declared operating profit margin on operating expense is not less than 15.5%. If the operating revenue had been above two thousand crore rupees, row 1 would not apply on its words. For a rupee loan to an associated enterprise rated BBB, the minimum rate is the State Bank of India one-year marginal cost of funds lending rate on 1 April plus 325 basis points.
Who is affected
Eligible assessees under rule 87 with a transaction listed in rule 88: IT services and data centre providers, lenders to non-resident associated enterprises, guarantors, generic drug researchers, auto component exporters and recipients of low value-adding intra-group services; and the accountants who certify row 8.
Need help with safe harbour pricing?
The Table is exact: a margin a fraction below, or a rating read on the wrong date, takes the transaction outside the row. Our tax planning advisory team can test your numbers against rule 89 and the rule 86 definitions.
Key takeaways
- The declared transfer price is accepted if the rule 90 option stands and a Table row is met.
- Margins in the Table: 15.5% (IT services), 24% (generic drug research), 12% (core auto), 8.5% (non-core auto), 15% (data centre services); the IT and research rows have operating revenue ceilings.
- Guarantee commission: not less than 1% per annum on the amount covered by the guarantee.
- Loan spreads depend on credit rating, currency and the size of aggregate loans.
- The least of multiple ratings is taken.
- Block period of three tax years from 2026-2027; sections 171 and 172 still apply.
Read next
- Rule 86: safe harbour definitions
- Rules 87 and 88: eligible assessee and eligible transactions
- Rules 90 to 93: option procedure and exclusions
- Rules 99 to 102: safe harbour for income attribution
Disclaimer: Based on the Income-tax Rules, 2026 (G.S.R. 198(E), notified on 20 March 2026), read with the amending notifications issued up to 22 September 2026, as consulted on 2 October 2026. It explains the words of the rules and forms only; later notifications, the forms and utilities on the e-filing portal, circulars and the way the tax authorities apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.