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Circular No. 5 of 2026
F.No0.370142/17/2026-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division)
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New Delhi, 12th May, 2026
Sub: Clarifications on the Safe Harbour Rules for sale of rough diamonds in Special
Notified Zones (SNZs)-reg.
Rules 99-102 of the Income-tax Rules, 2026, inter alia, provides for the safe harbour
to a foreign company, being the cligible assessce, engaged in the business of selling raw
diamonds in any notified special zone as referred to in section 9(9)(c)(ii)(C) of the Income-
tax Act, 2025 (the Act). Certain queries have been received by the Board about the
implementation of Safe Harbour Rules for sale of rough diamonds in Special Notified Zones.
After considering the queries, the Board, in exercise of powers under section 239 of the Act,
issues the following clarifications, namely:-
Q.1
Whether all diamonds (sorted and unsorted) imported with a Kimberley Process
Certificate are covered within the definition of ‘raw diamonds’?
Ans.
Rule 99(f) of the Income-tax Rules, 2026 defines “raw diamonds™. According to
the said definition, raw diamonds means diamonds that are, —
()
uncut or unpolished;
(ii)
unassorted;
(iii)
unworked or simply sawn, cleaved or bruted;
(iv)
not conflict diamonds as defined by the Kimberley Process;
(v)
accompanied by Kimberley Process Certificate issued by the
Kimberley Process authority in the exporting country; and
(vi)
falling under Tariff Heading 7102 of the First Schedule to the
Customs Tariff Act, 1975 (51 of 1975).
It is clear from the aforesaid definition that ‘sorted diamond’ does not fall under
the definition of ‘raw diamonds’. Further, in order to be considered as “raw
diamonds”, all sub-clauses of rule 99(f) are required to be satisfied
simultaneously and simply having a Kimberley Process Certificate shall not be
sufficient.
Q.2
What would be the applicable tax rates on the profits declared under safe harbour
rules? Whether the benefits of deductions can be availed by foreign mining
companies while paying applicable tax rates under the safe harbour rules? If so,
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the details thereof?
Ans,
The applicable tax rate would be the rates as applicable to a foreign company
(i.e. 35%) and surcharge, wherever applicable. The Safe Harbour Rules specifies
that if an eligible assessee (foreign company) declares minimum 4% profit of
gross receipts from eligible business (sale of raw diamonds in a notified zone) as
income, such declaration shall be eligible for safe harbour. That means such
declaration shall be accepted by an income tax authority.
However, foreign mining companies cannot avail the benefits of deductions
while benefiting from safe harbour rules. This position is clearly. laid out under
rule 100(3) of Income-tax Rules, 2026.
Q3
Whether the foreign mining companies, who opt for the safe harbour rules,
wouid also be able to claim benefit under the double taxation avoidance
agreement (DTAA) between India and their country of jurisdiction?
Ans.
Once a company has exercised safe harbour under the provisions of the Act, it
means that it has paid taxes in accordance with such rules. Where such a
company wants to avail any tax credit for such taxes in its home jurisdiction, it
may do so depending upon the provisions of the DTAA between India and such
country and the domestic law of that country.
Q4
Under what circumstances can the option exercised by the foreign mining
companies towards the safe harbour rules be declared invalid and what remedies
would the foreign mining companics have in such a scenario?
Ans.
As per rule 101(3) of the Income-tax Rules, 2026, an option exercised by the
foreign mining company towards safe harbour rules may be declared invalid if
safe harbour is availed by furnishing incorrect facts or facts related to business
are concealed.
Q.5
Does the eligible assessee need to be incorporated in India?
Ans,
The safe harbour regime is available to a forcign mining company. They need
not be incorporated in India for availing safe harbour rules. In fact, once
incorporated in India, the company becomes an Indian company and therefore,
become ineligible to avail safe harbour rules in respect of sale of raw diamonds.
Q6
Can the eligible assessee operate directly with the buyer or through an Indian
trader?
Ans.
The safe harbour rules for sale of raw diamonds are available to a foreign mining
company. The company is required to be involved itself in such business activity.
Where an Indian trader is also involved in such activity, there would be two
entities, the Indian trader and the foreign mining company. The profits of the
Indian trader would be required to be determined separately under the provisions
of the Act.
Q.7
Can the foreign mining companies avail benefit of the safc harbour rules regime
for the entire period covering tax year 2024-25 (i.e. from April 2024 onwards) or
will the benefit be restricted only to the period afier issuance of the Notification
i.e. 20th November 2024 onwards?
Ans.
Section 92CB of the Income-tax Act, 1961 (as it cxisted prior to its repeal) inter
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alia provides that the determination of income referred to in section 9(1)(i) of the
Income-tax Act, 1961 shall be subject to safe harbour rules. It was applicable for
the entire previous year 2024-25. Hence, foreign mining companies can avail
benefit of the safe harbour rules regime for the entirc period covering previous
year 2024-25 for the purposes of the Income-tax Act, 1961.
Q8
Will the buyer of raw diamonds in India be liable to deduct withholding tax
(TDS) in relation to the sales consideration payable to the foreign mining
companies?
Ans.
Yes, TDS provisions shall apply as they are applicable to foreign companies.
Q.9
What tax regime will be applied on a foreign mining company which has not
exercised an option for the safe harbour rules?
Ans,
A foreign mining company which has not opted for safe harbour rules shall
continue to be chargeable to tax as per the existing provisions of the Act read
with relevant DTAA, wherever applicable.
(Rohit Singh)
\!
Under Secretary (TPL-I}
CBDT, New Delhi
Copy to the:
1.
2. PS to the Finance Secretary.
3.
4. Chairman and Members, CBDT.
PS/OSD to FM/ PS/OSD to MoS(F).
PS to the Revenue Secretary.
5. Joint Secretaries/ CsIT/Directors/Deputy Secretaries/Under Secretaries, CBDT.
6. C&AG of India.
7.
8
9.
1
JS & Legal Advisor, Ministry of Law & Justice, New Delhi.
. Institute of Chartered Accountants of India.
CIT (M&TP), Official Spokesperson of CBDT.
0. Principal DGIT (Systems) for uploading on the departmental website.
[e
(Rohit Singh)
Under Secretary (TPL-I)
CBDT, New Delhi
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