In a significant move aimed at bolstering India's electric vehicle (EV) ecosystem, the Central Board of Direct Taxes (CBDT) has expanded the scope of safe harbour rules to include lithium-ion batteries as core auto components. Additionally, the threshold for availing safe harbour has been increased from Rs 200 crore to Rs 300 crore. These amendments are applicable for the assessment years 2025-26 and 2026-27.

Safe harbour rules provide businesses with immunity from detailed tax scrutiny if they adhere to predefined pricing norms under the Income-tax Rules, 1962. By classifying lithium-ion batteries as core auto components, companies importing these batteries can have their declared transfer prices accepted without extensive scrutiny, thereby reducing compliance risks and encouraging investment in the sector.

The inclusion of lithium-ion batteries in the safe harbour framework is expected to provide tax certainty to assessees opting for these provisions, facilitating a smoother import process for EV battery components. This move aligns with the government’s objective to promote electric vehicles and strengthen the domestic EV manufacturing ecosystem.

Stock Market Reaction:

Market reactions to this development have been positive. Shares of leading battery manufacturers, Amara Raja Energy and Exide Industries, experienced a surge following the announcement:
✔️ Amara Raja’s shares jumped by 5%
✔️ Exide Industries’ stock rose by 4%

Industry Impact and Future Prospects:

Industry experts believe that this policy change will not only benefit battery manufacturers but also accelerate investments in India's EV sector. By reducing transfer pricing disputes and providing tax certainty, the amendments are expected to attract more investors and speed up the shift to cleaner transportation solutions.

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