Transfer Pricing Laws · Panaji, Goa
Understanding Indian transfer pricing laws — Sections 92 to 92F, ALP methodology, associated enterprise definition, SDTs, and penalties — explained by qualified Chartered Accountants in Goa.
Overview
Transfer pricing law in India is codified under Chapter X of the Income Tax Act, 1961 — Sections 92 through 92F. Introduced in 2001 and substantially amended since, these provisions require every international transaction between associated enterprises to be undertaken at arm's length price (ALP). The CBDT has supplemented the statute with Rules 10A to 10THD under the Income Tax Rules, 1962.
Understanding the precise scope of these provisions — what constitutes an 'associated enterprise', which transactions qualify as 'international', and what the penalty matrix looks like — is essential before any TP strategy is designed. Our TP documentation and transfer pricing services are built on this legal foundation.
What we cover
Every provision from Section 92 to 92F and the associated Rules — understood and applied correctly.
Talk to our CA →Every international transaction between AEs shall be at arm's length price. The ALP is computed using the most appropriate method from the six prescribed methods. The section gives CBDT power to determine ALP and to disallow deductions in excess of ALP.
Defines associated enterprise (AE) broadly: direct or indirect shareholding of 26% or more; loan financing 51%+ of assets; board control; guaranteed debt; supply of 90%+ raw materials; and several other economic dependency criteria. Even a 'deemed AE' relationship triggers TP obligations.
Any transaction between two or more AEs, either or both of which are non-resident, in the nature of purchase/sale/lease of tangible or intangible property, provision of services, lending/borrowing, or any business restructuring. Also covers transactions with unrelated parties that are part of an arrangement involving an AE.
Domestic related-party transactions exceeding ₹20 crore — primarily payments to related parties, inter-unit transactions in tax holiday entities (Section 80IA etc.), and inter-company cost allocations — are SDTs subject to TP rules since FY 2012-13.
Prescribes the six ALP determination methods and the arithmetic mean / arm's length range (±1%) tolerance concept. The 'most appropriate method' (MAM) is selected based on the nature of the transaction and availability of reliable comparables. Rule 10B/10C lay down criteria for method selection.
Section 92D requires contemporaneous TP documentation; Section 92E mandates Form 3CEB by a CA; Section 92F provides definitions of 'enterprise', 'transaction', and 'permanent establishment'. Penalties: 2% of transaction value under Section 271AA for documentation failure; 200% of tax on concealed income under Section 271AAB; ₹1 lakh under Section 271BA for 3CEB non-filing.
Key provisions
Direct or indirect holding of 26% or more of voting power creates an 'associated enterprise' relationship triggering TP obligations.
CUP, RPM, CPM, TNMM, PSM, and Other Method — the 'most appropriate method' is selected per CBDT guidelines.
Specified domestic transactions above ₹20 crore aggregate in a year attract TP compliance obligations.
Penalty of 200% of tax on under-reported income under Section 271AAB for TP adjustments related to concealed income.
Frequently asked questions
All international transactions between associated enterprises are covered — purchase/sale of goods, services, intangibles, loans, guarantees, business restructurings, and cost sharing. Specified domestic transactions exceeding ₹20 crore aggregate are also covered. Transactions with unrelated parties that are part of an arrangement involving an AE can also be brought within scope.
An AE relationship arises from: direct/indirect shareholding of 26%+; loans constituting 51%+ of total assets; board-level control; guarantees covering 10%+ of total borrowings; appointment of 50%+ directors; dependence for 90%+ of raw materials; or exclusive rights over intangibles. The relationship is assessed at any time during the year.
CUP (Comparable Uncontrolled Price) — compares transaction price with uncontrolled comparables; RPM (Resale Price Method) — backwards from resale price; CPM (Cost Plus Method) — cost plus gross markup; TNMM (Transactional Net Margin Method) — net margin relative to costs/assets/revenue; PSM (Profit Split Method) — splits combined profit; Other Method — any method consistent with internationally accepted principles. TNMM is most widely used in India.
Section 271AA: 2% of the transaction value for failure to maintain documentation or furnishing incorrect information. Section 271BA: ₹1 lakh for failure to file Form 3CEB. Section 271AAB: 200% of tax on income not reported or under-reported due to TP adjustments. Section 271G: 2% of transaction value for failure to furnish information/documents called by the TPO.
Rather than a single arm's length price, Indian rules allow an arm's length range — the interquartile range of operating margins of comparable companies. If the taxpayer's margin falls within the range, no adjustment is made. If it falls outside, the median of the range is used as the ALP. This was introduced to reduce disputes arising from minor deviations.
Rules 10TD-10THD prescribe safe harbour rates for specified categories — IT/ITES services (operating margin ≥17%), knowledge process outsourcing (≥24%), intragroup loans (benchmarked rate + spread), low-value-adding services (cost + 5%), and others. Opting into safe harbour provides certainty and avoids TPO scrutiny, at the cost of accepting a potentially higher margin than the taxpayer's actual arm's length position.
The Master File (Form 3CEAA) must be filed by constituent entities of international groups whose consolidated revenue exceeds ₹500 crore or whose Indian intercompany transactions exceed ₹50 crore. It contains a high-level overview of the MNC group's global business, TP policies, intangibles, intercompany financial arrangements, and financial and tax positions. It is filed electronically by 30 November each year.
Related services
Our qualified CAs in Panaji, Goa will map your transactions to the relevant provisions, assess your exposure, and build a compliant and defensible transfer pricing position. No jargon, clear advice.