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India – Transfer Pricing (2025)

India’s transfer pricing framework is grounded in the Income-tax Act, 1961 and the Income-tax Rules, 1962. Section 92C of the Income-tax Act, 1961 governs the determination of the “arm’s length price.” Although Indian law does not explicitly use the phrase “arm’s length principle,” it requires the determination of arm’s length price on the basis of that principle (S 92C). Section 92B defines an “international transaction” and Section 92A provides a comprehensive definition of an associated enterprise (related party). The domestic framework also sets out documentation requirements, dispute resolution mechanisms and administrative and penalty provisions applicable for non-compliance.

Arm’s length principle and the role of the OECD Guidelines

Indian legislation does not explicitly recognise the direct applicability of the OECD Transfer Pricing Guidelines, but the OECD Guidelines and the UN Transfer Pricing Manual serve as important references for taxpayers preparing transfer pricing analyses and for Transfer Pricing Officers (TPOs) conducting audits. India’s domestic rules and guidance are broadly aligned with the OECD Guidelines and the UN Manual, but domestic law and rules are the formal sources of authority.

Section 92A of the Income-tax Act, 1961 defines an “associated enterprise” in broad terms: an enterprise that participates directly or indirectly, or through one or more intermediaries, in the management, control or capital of another enterprise; it also covers cases where two enterprises have common control, capital or management through a third enterprise. The definition anticipates a number of other relationships that may render two parties associated; overall, it is detailed and exhaustive and serves as the basis for determining whether a transaction qualifies as an international transaction for transfer pricing purposes (S 92A).

Methods and criteria for application

The Indian rules explicitly recognise the set of transfer pricing methods. Rule 10B and 10AB of the Income-tax Rules, 1962 list the methods: Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus Method, Transactional Net Margin Method (TNMM), Profit Split Method and the “Other Method.” The “Other Method” in rule 10AB may be any method that considers the price charged or paid, or which would have been charged or paid, for the same or similar uncontrolled transaction under similar circumstances, taking into account all relevant facts.

India does not prescribe a fixed hierarchy of methods; instead, it applies the “Most Appropriate Method” approach under rule 10C of the Income-tax Rules, 1962. The selection of the most appropriate method is based on considerations of the nature and class of the international transaction, the functions-assets-risks (FAR) of the parties, the availability and reliability of comparable data, the extent to which reliable adjustments can be made, and the nature, extent and reliability of any assumptions required to apply a method.

Comparability and ranges

The Indian tax administration follows, in practice, the comparability analysis guidance set out in Chapter III of the OECD Transfer Pricing Guidelines and the UN Manual. There is no legal preference for domestic comparables over foreign comparables; the choice depends on the tested party and the suitability of domestic or foreign comparables. India generally relies on publicly available data and does not use secret comparables. Nevertheless, Transfer Pricing Officers may request third-party financial information that is not publicly available for a given year; when such information is used, taxpayers are afforded an opportunity to contest the selection of such comparables.

India introduced the arm’s length range concept by rule 10CA of the Income-tax Rules, 1962. The range applies only where two conditions are satisfied: A) the most appropriate method is not the profit split method or the “other method,” and B) the dataset includes six or more comparables. If the range applies and the controlled transaction’s price falls outside the arm’s length range —which spans from the 35th percentile to the 65th percentile of the dataset— the median of the dataset must be used to determine the arm’s length price. Where the range concept is not applicable, the arithmetic mean of all values in the dataset is prescribed. The detailed methodology for computing the arm’s length range is set out in rule 10CA.

Comparability adjustments are permitted under Indian rules where such adjustments can be made reliably and accurately; see Rule 10B(1)(a)-(e) and Rule 10B(3) of the Income-tax Rules, 1962.

Documentation and reporting

Documentation obligations stem from S 92D read with rule 10D (local file) and rule 10DA (master file), and S 286 with rule 10DB for Country-by-Country Reporting (CbCR). Rule 10D prescribes the list of documents comprising the Local file. An audit report relating to international transactions and specified domestic transactions must be filed in Form No. 3CEB under rule 10E. Rule 10DA prescribes the Master file contents; the relevant forms are Form 3CEAA and Form 3CEAB. Rule 10DB prescribes CbCR requirements and the related forms are Form 3CEAC, Form 3CEAD and Form 3CEAE.

Deadlines and filing specifics are: the Master File must be filed by the last date for filing the income tax return, i.e., 30 November of the year following the completed financial year. The CbCR must be filed within 12 months from the end of the reporting accounting year. The audit report (Form No. 3CEB) associated with the Local File must be filed by 31 October of the year following the completed financial year. The documentation prepared under rule 10D (part of the Local File) must be maintained but is filed only if specifically requested by tax authorities. Relevant statutes include S92D, S286 and Rules 10D, 10DA and 10DB.

Penalties and compliance incentives

There are penalties for non-compliance but no specific compliance incentives. For failure to maintain documents under S92D (Local file), a penalty equal to 2% of the value of each international transaction may be imposed. For failure to maintain the Master file where applicable, a penalty of INR 500,000 applies. For non-furnishing of CbCR, penalties are INR 5,000 per day up to one month and INR 15,000 per day thereafter; if the taxpayer still fails to furnish the CbCR even after a penalty order, further penalties of INR 50,000 per day may be imposed. For inaccurate information in the CbCR, a penalty of INR 500,000 may apply. None of these penalties is automatic: due statutory process and the opportunity to be heard are required, and reasonable cause may avoid imposition (S 271AA, S 271BA, S 271G, S 271GB).

Exemptions from documentation obligations

Rule 10D sets monetary thresholds for Local file obligations: no Local file is required if the aggregate value, as per books of account, of international transactions does not exceed INR 1 crore. Master file thresholds under rule 10DA are dual: the Master file is required where consolidated group revenue exceeds INR 500 crore (INR 5 billion) and the aggregate value of international transactions during the accounting year exceeds INR 50 crore (INR 500 million), or where transactions in intangible property exceed INR 10 crore (INR 100 million). For CbCR, Rule 10DB establishes the threshold for group revenue: CbCR was required where group revenue exceeded INR 5500 crore (INR 55 billion), and from 1-4-2021 the threshold was updated to INR 6400 crore (INR 64 billion). Local filing obligations for CbCR by a constituent entity resident in India follow the provisions of Section 286(4).

Administrative approaches to avoid and resolve disputes: APAs and MAPs

India provides Advanced Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs) among its dispute prevention and resolution mechanisms. Statutory provisions include S92CC, S92CD and S144C of the Income-tax Act, 1961 and Rules 10F to 10T of the Income-tax Rules, 1962, with rule 44GA and rule 44G addressing aspects of APAs and MAPs. India’s APA programme began in FY 2012-13. An APA can cover up to five consecutive financial years. Rollback provisions introduced in 2014 permit rollback of an APA for up to four consecutive financial years preceding the first fiscal year of the APA period. MAP procedures are detailed in rule 44G, and the Indian tax administration released a comprehensive MAP guidance on 7 August 2020. India also has a Dispute Resolution Panel (DRP) under S144C for pre-assessment dispute resolution; the DRP is a three-member panel of senior tax officials and its decision is binding on the tax authority, though a taxpayer may still appeal.

Safe harbours and other simplification measures

India maintains safe harbour rules for certain specified international transactions and taxpayers (S92CB, Rules 10TA to 10TG). Rule 10TD sets out the detailed conditions and circumstances under which safe harbour applies for each category of specified international transaction. A specific safe harbour targets low value-adding intra-group services: under rule 10TC(x) and rule 10TD(2A)(11) a mark-up of up to 5% on relevant costs is covered by safe harbour provided the entire value of the international transaction, including the mark-up, does not exceed INR 100 million in the given financial year; cost pooling methodology, exclusion of shareholder costs and duplicate costs and the reasonableness of allocation keys must be certified by an accountant.

Other legislative or administrative aspects

Taxpayers are permitted to make year-end adjustments to align the value of international transactions with arm’s length outcomes; such adjustments may be subject to scrutiny in a transfer pricing audit. India has enacted secondary adjustment rules with effect from FY 2016-17; these are contained in S 92CE of the Income-tax Act, 1961 and rule 10CB of the Income-tax Rules, 1962. For attribution to permanent establishments (PEs), India does not adopt the Authorised OECD Approaches (AOA); instead, attribution is determined pursuant to rule 10 of the Income-tax Rules, 1962 read with applicable Double Taxation Agreements.

Other relevant material: intangibles, commodities, financial transactions and CCAs

No domestic guidance is provided in the profile for commodity transactions. India does not provide specific domestic guidance for pricing controlled transactions involving intangibles and has no special rules for hard-to-value intangibles (HTVI); administrative practice generally relies on accepted valuation methods and the OECD Guidelines as reference. With regard to intra-group services, except for the low-value adding services safe harbour, India does not have specific statutory guidance and expects taxpayers to adopt the Most Appropriate Method and keep supporting documentation. In the area of financial transactions there is no specific transfer pricing guidance, but India has anti-base erosion interest limitation rules outside of the TP regime: S 94B limits interest deductions in certain cases where interest is paid to non-resident associated enterprises. Under S 94B, “excess interest” is the amount of total interest paid that exceeds 30% of the borrower’s earnings before interest, taxes, depreciation and amortisation (EBITDA) for the previous year or the interest paid to associated enterprises, whichever is less; the disallowed excess interest can be carried forward for up to eight assessment years. The minimum threshold of interest payment for S 94B to apply is INR 10 million. India does not have specific legislation on cost contribution agreements; such arrangements are evaluated on their facts and taxpayers should retain accurate records of costs and allocation keys.

Conclusion

India’s transfer pricing regime is comprehensive and largely aligned in practice with the OECD Guidelines while being implemented through domestic law (Income-tax Act, 1961 and Income-tax Rules, 1962). The country applies the Most Appropriate Method approach, permits comparability adjustments, embraces the arm’s length range concept, offers safe harbours and has an established APA and MAP framework including rollback. Documentation and reporting obligations, their thresholds and deadlines are well-defined and administrative remedies including the DRP are in place. Notwithstanding this maturity, the profile shows limited domestic guidance on commodities, intangibles and HTVI, where authorities rely on generally accepted valuation approaches and OECD guidance.

References

For further information and full country profiles, see: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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