Domestic Transfer Pricing · Panaji, Goa
Expert advisory on specified domestic transactions (SDTs) — Section 80IA abuse prevention, related-party payments at arm's length, Form 3CEB compliance, and SDT benchmarking by qualified CAs in Goa.
Overview
Domestic transfer pricing — covering 'specified domestic transactions' (SDTs) under Section 92BA — was introduced in India from FY 2012-13 to prevent tax holiday entities (claiming deductions under Sections 80IA, 80IB, 80IC, 10AA, etc.) from inflating profits by manipulating prices in transactions with related domestic entities. The TP rules apply to SDTs when the aggregate value in a financial year exceeds ₹20 crore.
Unlike international TP, domestic TP adjustments do not create economic double taxation — the ALP adjustment in one entity is typically a corresponding reduction in another. However, the compliance obligations are identical: Form 3CEB, contemporaneous documentation, and benchmarking. The TPO scrutinises SDTs with the same intensity as international transactions. Our TP documentation and benchmarking analysis services cover SDTs fully.
What we cover
From tax-holiday unit transactions to related-party payments — complete SDT compliance and advisory.
Talk to our CA →Any transaction between a tax-holiday unit (claiming deduction under Section 80IA, 80IB, 80IC, 80IE, 10AA, or 10A) and any other person carrying on a business or profession with the same enterprise — where the transaction enables profit-shifting into the tax-free unit — is an SDT subject to TP.
SDTs include: payments to related parties under Section 40A(2)(b); inter-unit transactions of a tax holiday entity; transactions between a holding company and its wholly owned subsidiary; and any other transactions notified by the CBDT — when the aggregate exceeds ₹20 crore.
Section 40A(2) disallows expenditure paid to related parties above fair market value. For payments above the ₹20 crore SDT threshold, TP benchmarking is required to substantiate that the payments are at arm's length — otherwise the disallowance can be substantial.
Identifying comparables for domestic transactions — often using CAPITALINE or Prowess — and applying the TNMM, CUP, or Other Method to determine the arm's length price or margin for each SDT category.
SDTs must be reported in Form 3CEB alongside international transactions. Each SDT's nature, parties, value, ALP method, and computed ALP must be disclosed. The 31 October filing deadline applies to both.
Maintaining contemporaneous documentation for SDTs under Rule 10D — functional analysis, comparable search, ALP computation — to substantiate the arm's length nature of each transaction type.
Key SDT categories
Specified domestic transactions are within TP scope only when the aggregate value exceeds ₹20 crore in the financial year.
Any transaction with a unit claiming deductions under Sections 80IA, 80IB, 80IC, 80IE, 10AA, or 10A is an SDT if the ₹20 crore threshold is met.
Payments to related parties under Section 40A(2)(b) exceeding fair market value are disallowable — TP benchmarking substantiates the arm's length price above the ₹20 crore threshold.
SDTs must be disclosed in Form 3CEB — certified by a CA — by 31 October, along with international transactions.
Frequently asked questions
SDTs are domestic related-party transactions subject to transfer pricing rules when the aggregate value exceeds ₹20 crore in a financial year. They include: any expenditure in respect of which payment has been made or is to be made to a person referred to in Section 40A(2)(b); any transactions between an entity claiming a tax holiday deduction and any related person; and any other transaction notified by the CBDT. The full list was amended in 2017 to narrow it to these categories.
Domestic TP rules were introduced to prevent tax arbitrage between related domestic entities — particularly the manipulation of prices in transactions with units claiming tax holiday deductions (Section 80IA, 10AA, etc.). By inflating sales prices from the tax-free unit to the taxable entity, groups could shift profits into the exempt entity and reduce overall tax liability. TP rules require such transactions to be at arm's length, eliminating the arbitrage.
Unlike international TP, domestic TP adjustments do not cause economic double taxation — the upward adjustment in one entity should correspond to a deduction or lower income in the counterparty. However, timing differences (adjustments in one year may affect a different assessment year for the counterparty) can create cash flow issues. The taxpayer should coordinate the TP position for both entities to ensure consistency.
The same documentation as for international transactions: contemporaneous TP study under Rule 10D covering functional analysis, ALP method, comparable search, and ALP determination. SDTs must also be disclosed in Form 3CEB certified by a CA. The documentation must be in existence before the ITR due date. Failure to maintain documentation attracts 2% penalty on the SDT value under Section 271AA.
Yes. The six prescribed ALP methods — CUP, RPM, CPM, TNMM, PSM, and Other Method — are available for both international transactions and SDTs. The most appropriate method is selected based on the nature of the transaction. For domestic related-party payments (e.g., management fees, rent, royalties), TNMM or CUP based on market rates is typically used.
Section 40A(2) disallows expenditure paid to specified related parties to the extent it is excessive or unreasonable, having regard to fair market value. For SDTs above ₹20 crore, the ALP determined under the TP rules is the benchmark for Section 40A(2). Any payment above ALP is disallowed. Conversely, a well-documented TP study demonstrating that payments are at arm's length provides a complete defence against Section 40A(2) disallowance.
Related services
Domestic transfer pricing requires the same rigour as international TP — Form 3CEB, contemporaneous documentation, and benchmarking. Our qualified CAs in Panaji, Goa ensure your SDTs are fully compliant.