Transfer Pricing Laws in India
Sections 92 to 92F of the Income Tax Act – Understanding the Legal Framework
Transfer pricing laws in India govern the pricing of transactions between associated enterprises (AEs) — related parties such as parent companies, subsidiaries, joint ventures, and group entities. Introduced in India through the Finance Act 2001 by inserting Sections 92 to 92F in the Income Tax Act 1961, these provisions require that all international transactions and specified domestic transactions between associated enterprises are priced at the arm's length price (ALP) — the price that would have been charged in a comparable transaction between unrelated parties under similar conditions.
The objective is to prevent profit shifting and base erosion — where multinational companies manipulate the prices of intercompany transactions to shift taxable income from high-tax jurisdictions (like India) to low-tax or zero-tax jurisdictions. India's transfer pricing regulations are aligned with the OECD Transfer Pricing Guidelines and the BEPS (Base Erosion and Profit Shifting) Action Plans. Non-compliance with arm's length pricing results in transfer pricing adjustments, penalties of up to 2% of the transaction value, and interest on the tax demand.
Key Provisions of Indian Transfer Pricing Law
| Section | Subject | Key Provision |
|---|---|---|
| Section 92 | Arm's Length Price | All international transactions between AEs must be at arm's length; income to be computed accordingly |
| Section 92A | Associated Enterprise | Defines 13 criteria for determining when two enterprises are "associated" for TP purposes |
| Section 92B | International Transaction | Defines "international transaction" broadly — goods, services, IP, financing, cost sharing, business restructuring |
| Section 92C | ALP Methods | Prescribes 6 methods: CUP, RPM, CPM, PSM, TNMM, OTH; most appropriate method to be used |
| Section 92CA | Reference to TPO | Assessing Officer may refer TP cases to the Transfer Pricing Officer (TPO) |
| Section 92CB | Safe Harbour Rules | CBDT may prescribe safe harbour circumstances where ALP is not questioned |
| Section 92CC/CD | Advance Pricing Agreement | Taxpayer may enter an APA with CBDT to fix the ALP for future transactions |
| Section 92D | Documentation | Mandatory maintenance of prescribed TP documentation (Master File, Local File) |
| Section 92E | Accountant Report | Form 3CEB (CA-certified TP report) must be filed if international transactions exceed Rs 1 crore |
| Section 92F | Definitions | Defines "arm's length price", "enterprise", "permanent establishment", "property", "transaction" |
Our Transfer Pricing Law Advisory Services
AE Relationship Analysis
Analysis of associated enterprise relationships under Section 92A — identifying which group entities qualify as AEs for India TP purposes and which transactions are covered.
International Transaction Scoping
Identification of all international transactions under Section 92B — goods, services, IP licensing, loans, guarantees, cost sharing, business restructuring — that are subject to TP documentation.
Specified Domestic Transaction Advisory
Advisory on Specified Domestic Transactions (SDT) under Section 92BA — payments to related parties exceeding Rs 20 crore aggregate that require domestic TP compliance.
Safe Harbour Analysis
Analysis of CBDT Safe Harbour Rules to determine whether the taxpayer's transactions and margins qualify for safe harbour — avoiding the need for benchmarking analysis and TP adjustments.
APA Advisory
Advisory on Advance Pricing Agreement (APA) applications — unilateral, bilateral, and multilateral APAs — providing certainty on ALP for covered transactions for up to 5 future years.
Penalty & Litigation Advisory
Advisory on TP penalties under Section 270A and 271AA, and litigation strategy for transfer pricing adjustments — including DRP, ITAT appeals, and mutual agreement procedure.
Frequently Asked Questions
When do transfer pricing laws apply in India?
What is the arm's length price in Indian transfer pricing law?
What are the penalties for transfer pricing non-compliance in India?
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AE analysis, international transaction scoping, APA applications, and TP litigation strategy — handled by our specialist transfer pricing team.
Contact Us TodayF.A.Q.
It includes all yearly requirements such as filings, actuarial valuation, audits, and maintaining proper records.
Yes, regular compliance is required to maintain approval and tax benefits.
It helps determine the exact gratuity liability and required funding for the trust.
Yes, trusts must file necessary returns and maintain financial records as per regulations.
Non-compliance can lead to penalties, loss of tax benefits, or cancellation of approval.
Trustees and the employer are responsible for ensuring proper compliance.