Domestic Transfer Pricing in India - Specified Domestic Transactions SDT | CA Nainit Savla

Domestic Transfer Pricing in India

Specified Domestic Transactions (SDT) Under Section 92BA -- Documentation, Compliance and Assessment Defence

Domestic transfer pricing in India covers Specified Domestic Transactions (SDT) -- transactions between related Indian parties that exceed Rs 20 crore in aggregate during the financial year, which are subject to the arm's length standard and TP documentation requirements under Section 92BA of the Income Tax Act. Domestic TP was introduced from FY 2012-13 to prevent profit shifting between related domestic parties to take advantage of different tax rates -- such as transactions with an SEZ unit (tax holiday), a unit claiming Section 80IC deduction, or an entity paying a lower MAT rate.

While domestic TP covers fewer transactions than international TP and involves no DTAA considerations, the documentation requirements, benchmarking methodology, and assessment process are broadly similar to international TP. Form 3CEB (same form as international TP) must also report SDTs. Our team provides complete domestic TP compliance -- SDT identification, documentation, Form 3CEB SDT schedules, and defence before the TPO for domestic TP adjustments.

What Are Specified Domestic Transactions (SDT)?

SDT Category	Section	Description
Payments to Related Parties (Section 40A(2)(b))	92BA(i)	Payments to related persons (directors, relatives, partners, 20% or more shareholders) disallowable under Section 40A(2) if not at arm's length
Business Transactions with Tax Holiday Units	92BA(ii)-(v)	Transactions with SEZ units, Section 80-IA units, Section 80-IB units -- where related entities claim tax holidays or deductions
Transactions with Tax Holiday Companies	92BA(vi)	Transactions between the same entity's different units/divisions where one unit has a tax holiday
Any other transaction under Chapter VI-A	92BA(vii)	Transactions where related party income/expenditure impacts deductions claimed under Chapter VI-A

Our Domestic TP Services

SDT Identification and Scoping

Identification of all transactions meeting the SDT definition under Section 92BA and the Rs 20 crore aggregate threshold -- covering payments to related parties, transactions with tax holiday units, and other covered SDT categories.

Domestic TP Documentation

Preparation of TP documentation for SDTs -- functional analysis, method selection, comparables benchmarking (Indian comparables), and ALP determination -- in the format prescribed under Rule 10D.

Form 3CEB SDT Schedules

Preparation and certification of SDT schedules in Form 3CEB (Schedule 32 and 33) -- covering all SDTs, methods used, and ALP determined -- filed with the income tax return.

Interunit Pricing Review

Review and documentation of pricing for transactions between different units/divisions of the same company -- particularly where one unit claims a Section 80-IC, 80-IE, or SEZ tax holiday on profits allocated from the interunit transaction.

Related Party Payment Analysis

Analysis of payments to related parties under Section 40A(2)(b) -- director remuneration, partner's commission, rent to relatives -- to ensure they are at arm's length and properly documented for SDT compliance.

Domestic TP Assessment Defence

Defence of domestic TP positions before the TPO in assessment proceedings -- TPO notice responses, hearing representation, and DRP objections for domestic TP adjustments.

Frequently Asked Questions

What is the threshold for domestic transfer pricing in India?

Domestic TP (SDT) provisions apply only if the aggregate value of all SDTs entered into by the taxpayer exceeds Rs 20 crore in the financial year. If the total of all SDTs is below Rs 20 crore, domestic TP documentation is not required and Section 92BA does not apply. The Rs 20 crore threshold is computed on the aggregate of all SDTs combined -- not per transaction. Each individual SDT (even if worth Rs 1 crore) is counted toward the aggregate. Once the Rs 20 crore aggregate is exceeded, all SDTs (including those below Rs 1 crore individually) must be documented and reported.

Do domestic TP provisions apply to transactions with SEZ units?

Yes. Transactions with SEZ units (which claim tax holiday on SEZ profits) are covered under Section 92BA as SDTs -- specifically under clause (iii) which covers transactions with units enjoying deductions under Section 10AA. The arm's length requirement applies to prevent non-SEZ group entities from inflating payments to the SEZ unit (thereby shifting taxable profits to the tax-exempt SEZ entity). Similarly, transactions with units claiming Section 80-IB (industrial undertakings, hotels, hospitals) or Section 80-IC (special category states) deductions are also covered as SDTs.

Are benchmarking and comparables required for domestic TP?

Yes. Domestic TP documentation requires the same rigorous comparables benchmarking as international TP -- selecting the most appropriate method from the six prescribed methods, identifying comparable Indian companies (using Prowess, Capitaline, or other databases), applying filters, computing the arm's length margin range (interquartile range), and comparing the taxpayer's actual margin with that range. However, since domestic TP involves Indian entities transacting with Indian related parties, the comparables are almost exclusively Indian companies, making the Prowess and Capitaline databases the primary sources for domestic TP benchmarking.

Have SDTs Above Rs 20 Crore? Ensure Your Domestic TP Compliance Is Complete.

SDT identification, domestic TP documentation, Form 3CEB SDT schedules, and assessment defence -- complete domestic TP services from our specialist team.