Transfer Pricing Laws in India - Sections 92 to 92F Income Tax Act | Expert CA

Transfer Pricing Laws in India

Sections 92 to 92F of the Income Tax Act - Arm's Length Principle, AEs and TP Compliance 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 through the Finance Act 2001 by inserting Sections 92 to 92F in the Income Tax Act 1961, these provisions require all international transactions and specified domestic transactions between AEs to be priced at the arm's length price (ALP) -- the price that would have been charged between unrelated parties in comparable conditions. The objective is to prevent profit shifting from high-tax jurisdictions (like India) to low-tax territories.

India's TP regulations are aligned with the OECD Transfer Pricing Guidelines and BEPS Action Plans. Non-compliance results in TP adjustments, penalties of up to 2% of transaction value under Section 271AA, and interest on the resulting tax demand. Our team advises on the complete TP legal framework -- from AE identification and international transaction scoping to DRP, TPO assessment defence, and APA applications.

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 computed accordingly
Section 92A	Associated Enterprise	Defines 13 criteria for determining when two enterprises are "associated" for TP purposes
Section 92B	International Transaction	Broadly covers goods, services, IP, financing, cost sharing, and business restructuring
Section 92C	ALP Methods	Prescribes 6 methods: CUP, RPM, CPM, PSM, TNMM, Other; most appropriate method to be used
Section 92CA	TPO Reference	AO may refer TP cases to the Transfer Pricing Officer (TPO) for independent determination of ALP
Section 92CB	Safe Harbour	CBDT may prescribe safe harbour circumstances where the ALP is not questioned
Section 92CC/CD	Advance Pricing Agreement	Taxpayer may enter APA with CBDT to fix the ALP for future transactions (up to 5 years)
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, and 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 consequently covered.

International Transaction Scoping

Identification of all international transactions under Section 92B -- goods, services, IP licensing, loans, guarantees, cost sharing, and business restructuring -- that require TP documentation.

Specified Domestic Transaction Advisory

Advisory on Specified Domestic Transactions (SDT) under Section 92BA -- payments to related parties and transactions with tax holiday units exceeding Rs 20 crore requiring domestic TP compliance.

Safe Harbour Analysis

Analysis of CBDT Safe Harbour Rules to determine whether the taxpayer's transactions and margins qualify -- avoiding the need for benchmarking and TP adjustments for eligible transaction categories.

APA Advisory

Advisory on Advance Pricing Agreement applications -- unilateral, bilateral, and multilateral APAs -- providing CBDT certainty on ALP for covered transactions for up to 5 future years.

Penalty and Litigation Advisory

Advisory on TP penalties under Sections 270A and 271AA, and litigation strategy for TP adjustments -- including DRP, ITAT appeals, and mutual agreement procedure.

Frequently Asked Questions

When do transfer pricing laws apply in India?

Transfer pricing laws apply to any Indian taxpayer who enters into an international transaction with an associated enterprise. The threshold for mandatory Form 3CEB filing and TP documentation is aggregate international transactions exceeding Rs 1 crore in the financial year. Specified Domestic Transactions (SDT) with Indian AEs exceeding Rs 20 crore aggregate are also subject to TP compliance. Safe harbour rules provide relief for eligible categories such as software services, ITES, contract R&D, and intercompany loans.

What is the arm's length price in Indian transfer pricing?

The arm's length price (ALP) is the price applied in a transaction between persons other than associated enterprises in uncontrolled conditions. It is determined using one of the six prescribed methods under Section 92C -- CUP, RPM, CPM, PSM, TNMM, or the Other Method. The most appropriate method is selected based on the nature of the transaction, availability of comparables data, and reliability of the analysis. When more than one comparable exists, the arm's length price is typically the median of the interquartile range of comparables' margins.

What are the penalties for transfer pricing non-compliance in India?

Section 271AA prescribes a penalty of 2% of the value of each international transaction or SDT where the taxpayer fails to maintain prescribed TP documentation, fails to report a transaction in Form 3CEB, or maintains or furnishes incorrect information. Section 270A applies underreporting/misreporting penalty of 50% to 200% of tax on income adjusted in TP proceedings. Interest under Sections 234B and 234C also applies on the resulting tax demand. The combination makes timely, accurate TP compliance essential for all taxpayers with international transactions.

Need Transfer Pricing Law Advisory? Our TP Specialists Are Here.

AE analysis, international transaction scoping, APA applications, safe harbour analysis, and TP litigation strategy -- handled by our specialist transfer pricing team.