Rules 99 to 102 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.
Rules 99 to 102 of the Income-tax Rules, 2026 give two foreign-company businesses a presumptive income attribution safe harbour: selling raw diamonds in a notified special zone at 4% or more of gross receipts, and storing components in a custom bonded area for sale to an electronics contract manufacturer at 2% or more of gross receipts. Electing it closes off every deduction, set-off and the mutual agreement procedure.
What makes this block different
Rules 86 to 98 accept a transfer price. Rules 99 to 102 accept an amount of income. This is a presumptive attribution regime for a foreign company's Indian business profits — closer in character to a presumptive taxation scheme than to a transfer pricing safe harbour, and its consequences under rule 100(3) are correspondingly sweeping.
Rule 99 — the definitions that set the perimeter
| Term | Meaning |
|---|---|
| Contract manufacturer | An Indian company which produces specified electronic goods on behalf of any foreign company in a custom bonded area |
| Custom bonded area | A warehouse as referred to in section 65 of the Customs Act, 1962 |
| Eligible assessee | (i) a foreign company engaged in the business of diamond mining which has exercised an option under 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 specified electronic goods |
| Eligible business | (i) a business of selling raw diamonds in any notified special zone as referred to in 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 specified electronic goods |
| Relevant tax year | The tax year in which the option for safe harbour is exercised |
"Gross receipts"
For each limb, gross receipts is the aggregate of (A) the amount paid or payable to the eligible assessee or to any person on his behalf, and (B) the amount received or deemed to be received by the eligible assessee or by any person on his behalf — on account of the sale of raw diamonds, or the sale of components in the custom bonded warehouse to the contract manufacturer, as the case may be.
The definition is deliberately double-sided: it catches both the accrual and the receipt, and both direct amounts and amounts routed through a third party.
"Raw diamonds" — six cumulative conditions
Diamonds that are:
- uncut or unpolished;
- unassorted;
- unworked or simply sawn, cleaved or bruted;
- not conflict diamonds as defined by the Kimberley Process;
- accompanied by a Kimberley Process Certificate issued by the Kimberley Process authority in the exporting country; and
- falling under Tariff Heading 7102 of the First Schedule to the Customs Tariff Act, 1975.
Conditions 1 to 4 and 6 describe the goods. Condition 5 requires a Kimberley Process Certificate actually issued by the exporting country's authority to accompany the stones. A parcel that is physically raw and correctly classified but arrives without its certificate is not "raw diamonds" for rule 99(f), and the 4% safe harbour is unavailable for it. Certificate control is therefore part of the tax position, not just a customs formality.
"Specified electronic goods"
- mobile phones;
- laptops, all-in-one personal computers and tablets;
- servers and ultra small form factor;
- sub-assemblies to the finished goods above; and
- hearables and wearables and accessories related to the finished goods above.
The inclusion of sub-assemblies and accessories widens the category considerably — a foreign company supplying components for a sub-assembly line, not the finished handset, is still within the rule.
Rule 100 — the two rates
| Sl. | Eligible business | Circumstance |
|---|---|---|
| 1 | Selling of raw diamonds | Profits and gains of the eligible business chargeable under "Profits and gains of business or profession" shall be 4% or more of the gross receipts from that business |
| 2 | The business activity of storage of components in a warehouse in a custom bonded area for sale to a contract manufacturer | Profits and gains chargeable under the same head shall be 2% or more of the gross receipts from that business |
The income-tax authorities shall accept the option where the declared income meets these circumstances, unless it is declared invalid under rule 101(3).
Rule 100(3) — what the election costs
Where the option is exercised and not declared invalid:
- (a) any deduction allowable under sections 28 to 34, 44 to 49, 51, 52, Schedule IX and Schedule X is deemed to have been already given full effect to, and no further deduction under those provisions is allowed;
- (b) the written down value of any asset of the business is deemed to have been calculated as if depreciation had been claimed and actually allowed for that tax year;
- (c) no set off of unabsorbed depreciation under section 33(11) or carried forward loss under section 112(1) is allowed;
- (d) no set off of loss from another business under section 108(1), or from another head under section 109, is allowed against the income of that business.
Depreciation is deemed claimed and allowed whether or not it was. The written down value carried into the next year is reduced accordingly. So a company that elects safe harbour for one year and reverts to normal computation the next starts that next year with a lower depreciable base — the depreciation deemed absorbed in the safe harbour year is never recoverable. That, and clause (c), make the election a multi-year decision even though it is exercised annually.
Clause (d) is a ring-fence in both directions of loss relief: losses from other businesses or other heads cannot shelter the presumptive income. The 4% or 2% is, in practice, a floor on taxable profit from that business.
Rule 100(4) and (5) — transfer pricing still applies
Sections 171 and 172 apply in respect of an international transaction or specified domestic transaction if the eligible assessee enters into such a transaction while carrying on the eligible business, with those expressions carrying the meanings in sections 163 and 164.
The same point as rules 89(6) and 97(4): the presumptive attribution does not displace the documentation under rule 84 or the accountant's report in Form No. 48.
Rule 101 — the procedure
- (1) The assessee furnishes 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.
- (2) Where the option is not exercised, income from the eligible business is determined under the Act without regard to rule 100(2).
- (3) The Assessing Officer may declare the option invalid by an order in writing where the assessee has (a) availed the safe harbour by furnishing incorrect facts, or (b) concealed facts related to his business.
- (4) A reasonable opportunity of being heard must be given before declaring the option invalid.
- (5) A copy of the order is served on the assessee and the other provisions of the Act apply accordingly.
- (6) Form No. 49 is furnished electronically under digital signature or through electronic verification code, verified by the person authorised to verify the return under section 265.
The form goes in before the return, not by the return due date. Rule 101(1) says "before furnishing the return of income" — a sequencing requirement, not a calendar one, and the reverse of nothing else in the safe harbour block.
There is no deemed-valid rule and no time limit on invalidation. Rules 90(9) and (10) and rules 98(7) and (8) both cap the department's time and validate the option on silence. Rule 101 contains no equivalent — but it also narrows the grounds sharply, to incorrect facts or concealment only. There is no objection route to a Commissioner either.
Rule 102 — no mutual agreement procedure
The assessee shall not be entitled to invoke the mutual agreement procedure under a double taxation avoidance agreement referred to in section 159 in relation to an eligible business, where the option has been exercised under rule 101 and not declared invalid.
This mirrors rule 93 for international transactions and rule 102 is its counterpart here. For a foreign company, the loss matters more than it might for an Indian one — the treaty route is the natural way to relieve double taxation on attributed profits, and electing the safe harbour closes it.
The three safe harbour regimes side by side
| Point | Rules 86-93 | Rules 94-98 | Rules 99-102 |
|---|---|---|---|
| What is accepted | Transfer price | Transfer price | Amount of income |
| Who elects | Indian eligible assessees, mainly | Government electricity company, milk co-operative | Foreign companies |
| Form | Form No. 49 | Form No. 49 | Form No. 49 |
| Timing | By the section 263(1)(c) due date; return first | By the section 263(1)(c) due date; return first | Before furnishing the return |
| Who can invalidate | Transfer Pricing Officer, on reference | Assessing Officer | Assessing Officer |
| Grounds | Not eligible assessee or transaction | Same, plus tariff not per rule 97 | Incorrect facts or concealment only |
| Deemed valid on silence | Yes | Yes | No provision |
| Objection to Commissioner | Fifteen days | Fifteen days | No provision |
| Mutual agreement procedure | Barred (rule 93) | — | Barred (rule 102) |
| Documentation and report | Still due | Still due | Still due |
Worked example
A foreign company stores display modules and camera sub-assemblies in a section 65 bonded warehouse in India and sells them to an Indian contract manufacturer that assembles mobile phones for it. Gross receipts from that activity for tax year 2026-27 are Rs 480 crore.
- The components feed mobile phones and their sub-assemblies, both within rule 99(h).
- The safe harbour income is 2% of Rs 480 crore = Rs 9.6 crore, declared under "Profits and gains of business or profession".
- Form No. 49 is filed before the return for that year.
- No deduction under sections 28 to 34 or 44 to 49 is available; depreciation on the warehouse fit-out is deemed allowed, reducing the written down value carried forward; and no brought-forward loss can be set off against the Rs 9.6 crore.
- Because the company also has an international transaction with its Indian affiliate, rule 84 documentation and Form No. 48 remain due.
- If the group's home jurisdiction taxes the same profit, rule 102 blocks the mutual agreement procedure for this business.
Compliance checklist
- Confirm the assessee is a foreign company and the activity matches a rule 99(d) eligible business precisely.
- For diamonds, verify all six raw-diamond conditions, especially the Kimberley Process Certificate, and that the sale is in a notified special zone under section 9(9)(c)(ii)(C).
- For electronics, confirm the warehouse is a section 65 Customs Act warehouse and the buyer an Indian company producing specified electronic goods on behalf of a foreign company.
- Compute gross receipts on both the paid-or-payable and received-or-deemed-received limbs.
- Model the rule 100(3) cost — lost deductions, deemed depreciation, no set-offs — before electing.
- File Form No. 49 before the return, not with it.
- Keep the rule 84 documentation and Form No. 48.
- Weigh the rule 102 loss of the mutual agreement procedure against the certainty gained.
Common mistakes
- Filing Form No. 49 with the return. Rule 101(1) requires it beforehand.
- Treating a parcel without a Kimberley Process Certificate as raw diamonds.
- Electing without modelling the written down value effect of deemed depreciation.
- Expecting to set off brought-forward losses against the presumptive income.
- Assuming sub-assemblies and accessories are outside the electronics category.
- Dropping the transfer pricing documentation after electing.