Domestic Transfer Pricing in India - Specified Domestic Transactions SDT | Expert CA

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. These 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 exploit different tax rates -- such as transactions with an SEZ unit (tax holiday), a unit claiming Section 80-IC 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. Form 3CEB must also report SDTs. Our team provides complete domestic TP compliance -- SDT identification, documentation, Form 3CEB SDT schedules, and TPO assessment defence for domestic TP adjustments.

What Are Specified Domestic Transactions (SDT)?

SDT Category	Section	Description
Payments to Related Parties under Section 40A(2)(b)	92BA(i)	Payments to related persons (directors, relatives, partners, 20%+ shareholders) that are disallowable if not at arm's length
Transactions with SEZ Units	92BA(iii)	Transactions with units enjoying deductions under Section 10AA (SEZ) where related entities shift profits to the tax-exempt SEZ unit
Transactions with Section 80-IB/IC/IE Units	92BA(iv)/(v)	Transactions with units claiming industrial undertaking, hotel, hospital, or special category state deductions under Chapter VI-A
Interunit Transactions	92BA(vi)	Transactions between the same entity's different units where one unit has a tax holiday, enabling profit shifting between units

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, Indian comparables benchmarking (Prowess, Capitaline), and ALP determination in the format prescribed under Rule 10D.

Form 3CEB SDT Schedules

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

Interunit Pricing Review

Review and documentation of pricing for transactions between different units/divisions of the same company -- particularly where one unit claims a tax holiday, enabling the TPO to challenge the allocation of profits between units.

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 proposed by the Transfer Pricing Officer.

Frequently Asked Questions

What is the threshold for domestic transfer pricing in India?

Domestic TP provisions apply only if the aggregate value of all SDTs entered into by the taxpayer exceeds Rs 20 crore in the financial year. The Rs 20 crore threshold is computed on the aggregate of all SDTs combined -- not per transaction. Once the Rs 20 crore aggregate is exceeded, all SDTs (including those below Rs 1 crore individually) must be documented and reported in Form 3CEB. If the total of all SDTs is below Rs 20 crore, domestic TP documentation is not required and Section 92BA does not apply.

Do domestic TP provisions apply to transactions with SEZ units?

Yes. Transactions with SEZ units (which claim tax holiday on SEZ profits under Section 10AA) are covered under Section 92BA as SDTs. The arm's length requirement prevents non-SEZ group entities from inflating payments to the SEZ unit to shift 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 requiring arm's length pricing and documentation.

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), applying filters, computing the interquartile range, and comparing the taxpayer's actual margin with that range. Since domestic TP involves Indian entities transacting with Indian related parties, the comparables are almost exclusively Indian companies, making Prowess and Capitaline the primary databases 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.