Quick answer
What is transfer pricing in income tax?
Transfer pricing is the pricing of transactions between associated enterprises. Indian income tax law requires income from international transactions and specified domestic transactions to be computed at the arm's length price, meaning the price unrelated parties would agree. Taxpayers must keep documentation and file an accountant's report every year.
- Applies to any international transaction with an associated enterprise
- Specified domestic transactions only above ₹20 crore (reported)
- FY 2025-26 report: Form 3CEB, due 31 October 2026 (reported)
- From tax year 2026-27: Form 48 under section 172
- Six accepted methods to test the price
What is transfer pricing and why does it matter?
Transfer pricing matters because a group can move profit between countries simply by choosing the price one member charges another. Indian law stops this by taxing such transactions at the arm's length price, whatever the invoice says.
Under the Income-tax Act 1961 the rules sit in sections 92 to 92F, supported by Rules 10A to 10E. The Income-tax Act 2025, in force from 1 April 2026, carries the same rules in sections 161 to 173. For FY 2025-26 the 1961 Act still applies; from tax year 2026-27 the new numbering and forms apply.
The test is not whether you made a profit. A loss-making Indian subsidiary paying a high management fee to its parent, or a profitable one charging its parent too little for software work, can both face an adjustment that adds income in India.
Who is covered by transfer pricing rules in India?
You are covered if you have an international transaction with an associated enterprise, at any value, or specified domestic transactions above the reported ₹20 crore aggregate. Associated enterprises are linked by control, management or capital, tested under section 92A of the 1961 Act.
| Business | Typical related party transaction | Covered? |
|---|---|---|
| Indian subsidiary of a foreign company | Purchase of goods, royalty, management fees | Yes |
| Indian IT or support centre of a foreign group | Software or back-office services to the parent | Yes |
| Delhi exporter with a sister concern in Dubai | Sales to the sister concern | Yes, if they are associated enterprises |
| Start-up with a US or Singapore holding company | Cost recharges, loans, ESOP cross-charges | Yes |
| Indian company with a foreign branch or subsidiary | Guarantees, loans, shared costs | Yes |
| Indian group with large related party deals in India | Transactions with units claiming profit-linked deductions | Only above the ₹20 crore aggregate |
| Exporter selling only to unrelated buyers | None with group entities | No |
Thresholds as reported by TaxGuru (secondary), checked November 2026. Whether two parties are associated enterprises depends on the facts; we check it before scoping.
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What are the transfer pricing methods?
The arm's length price is set by the most appropriate of six methods recognised under section 92C and Rule 10B of the 1961 Act. The choice depends on the transaction, the functions each party performs and the comparable data available.
| Method | How it works | Often used for |
|---|---|---|
| Comparable uncontrolled price (CUP) | Compares with the price in a similar unrelated deal | Commodities, interest on loans |
| Resale price method | Works back from the resale price less a normal margin | Distributors who buy and resell |
| Cost plus method | Adds a normal mark-up to the supplier's cost | Contract manufacturing, simple services |
| Profit split method | Splits combined profit by contribution | Integrated operations, unique intangibles |
| Transactional net margin method (TNMM) | Compares net margin with comparable companies | IT services, support centres, most Indian cases |
| Other method | Any method that reflects the price unrelated parties would charge | Valuations, unusual transactions |
Methods as listed in section 92C read with Rules 10AB and 10B; under the 2025 Act the methods are reported to move to section 165.
What transfer pricing documentation is required?
Taxpayers with international transactions must keep a transfer pricing study that describes the group, the transactions, the functions, assets and risks of each party, the method chosen and the benchmarking. Detailed Rule 10D documentation is reported to apply where aggregate international transactions exceed ₹1 crore.
Below ₹1 crore you still need to show the price is at arm's length, just with lighter records. Larger groups have extra filings: a master file where group revenue exceeds ₹500 crore and international transactions cross ₹50 crore (or intangible transactions ₹10 crore), and a country-by-country report where consolidated group revenue exceeds ₹5,500 crore, as reported by practitioners. The documentation should exist by the report date, not be written after a notice arrives.
| Layer | Who needs it | Form (1961 Act → 2025 Act) |
|---|---|---|
| Local documentation (study) | International transactions above ₹1 crore | Kept on file, not filed |
| Accountant's report | Any international or specified domestic transaction | Form 3CEB → Form 48 |
| Master file | Large groups above the thresholds | Form 3CEAA → Form 56 |
| Country-by-country report | Groups above ₹5,500 crore revenue | Form 3CEAD → Form 59 |
Form numbers under the Income-tax Rules 2026 as reported by TaxGuru (secondary). Form 48 is confirmed by the Income Tax Department.
Transfer pricing compliance: step by step
A transfer pricing cycle runs alongside the year-end close: map the transactions, test them, document them, then file the report and return. Starting in the last fortnight before the due date is the most common reason studies are thin.
- 1
Map related parties
Draw the group chart and list every entity that meets the associated enterprise tests.
- 2
List transactions
Extract all dealings with those entities from the ledgers, including reimbursements, guarantees and loans.
- 3
Analyse functions and risks
Interview management to record who does what, who owns assets and who bears risk.
- 4
Select a method and benchmark
Choose the most appropriate method and search databases for comparable companies or deals.
- 5
Prepare the study and agreements
Write the documentation and align intercompany agreements and invoices with the conclusions.
- 6
File the report and return
A chartered accountant files the accountant's report, the taxpayer accepts it, and the return follows.
What are the transfer pricing due dates and penalties?
For FY 2025-26 (AY 2026-27), the accountant's report for transfer pricing cases is reported as due on 31 October 2026 and the return on 30 November 2026. The CBDT extensions in Circular 07/2026 for ordinary audit cases are read by practitioners as not covering transfer pricing cases.
| Default | Section | Penalty (reported) |
|---|---|---|
| Not furnishing the accountant's report | 271BA | ₹1 lakh, relief possible for reasonable cause |
| Not keeping documentation or not reporting a transaction | 271AA(1) | 2% of the transaction value |
| Not producing documents when asked | 271G | 2% of the transaction value |
| Not furnishing the master file | 271AA(2) | ₹5 lakh |
| Price found below arm's length | Adjustment by the officer | Extra income taxed, with interest and penalty on under-reporting |
Amounts as reported by TaxGuru (secondary), checked November 2026; dates also cross-checked with CBDT Circular 07/2026. Penalties are renumbered under the 2025 Act.
What changes in transfer pricing under the Income-tax Act 2025?
The concepts stay the same but the numbers change. Section 172 of the Income-tax Act 2025 now requires the accountant's report, Form 48 replaces Form 3CEB, and the Income Tax Department describes the new form as more structured, transaction-wise reporting in six parts.
Practitioners map the rest of the chapter as follows: associated enterprises in section 162, international transactions in section 163, specified domestic transactions in section 164, methods in section 165 and documentation in section 171. Rule 10E becomes Rule 85 of the Income-tax Rules 2026. Treat these as reported mappings and check the bare Act for any citation that goes into a reply. A detailed walk-through of the report itself is on our Form 3CEB page.
Transfer pricing assessments and disputes
When a case is picked for scrutiny, the assessing officer can refer the transfer pricing question to a Transfer Pricing Officer under section 92CA of the 1961 Act. The TPO examines your study, may reject comparables or the method, and can propose an adjustment that increases taxable income.
A strong defence starts with the original documentation: a clear functional analysis, a reproducible comparable search and agreements that match conduct. If an order goes against you, our income tax appeal page covers the appeal routes, and our income tax notice reply service handles the questionnaire stage.
Transfer pricing services in Delhi: how CA in Delhi helps
Many foreign-owned companies, start-ups with overseas holding companies and exporters with group concerns abroad are based in Delhi and NCR. We scope the work from a short call: your group chart, last year's report if any, and a list of related party transactions.
CA in Delhi passes the transfer pricing study and the report to the listed firm or partner chartered accountant that handles transfer pricing, since a practising CA must sign the report. Greenwolf Advisors, an advisory firm listed for cross-border structuring across India, UAE, UK, GCC and GIFT City, can help when the group structure itself needs review. You confirm the scope and a fixed engagement fee before any benchmarking starts. See the chartered accountant firms in Delhi we list, read our CA in South Delhi page if your office is there, or compare local options through tax consultant near me.
Frequently asked questions
Is transfer pricing applicable to small companies?
Yes. There is no turnover floor for international transactions with associated enterprises. A small Indian subsidiary with one invoice to its parent must still file the accountant's report, though detailed documentation is reported to apply only above ₹1 crore of international transactions.
What is the arm's length price?
It is the price that unrelated parties would agree for the same transaction in similar conditions. In practice it is often a range drawn from comparable companies, and your price is tested against that range.
Does transfer pricing apply to transactions between two Indian companies?
Only if they are specified domestic transactions and the aggregate for the year exceeds the reported ₹20 crore threshold. Ordinary dealings between two Indian group companies below that level are outside transfer pricing, though other provisions may still apply.
Which law applies to my FY 2025-26 transfer pricing?
The Income-tax Act 1961. FY 2025-26 is AY 2026-27 under the old Act, so the report is Form 3CEB under section 92E. The 2025 Act and Form 48 apply from tax year 2026-27.
What is a transfer pricing study?
It is the documentation that supports your prices: group overview, transaction details, functional analysis, method selection and benchmarking against comparables. The CA relies on it when signing the report, and the officer asks for it first in scrutiny.
Do reimbursements to a foreign parent count?
Yes. A reimbursement of costs to or from an associated enterprise abroad is an international transaction and must be reported, even when there is no mark-up. Keep the underlying invoices and allocation basis.
Can transfer pricing disputes be avoided in advance?
Largely, yes. Good contemporaneous documentation reduces the risk, and India also offers advance pricing agreements and safe harbour rules for some transactions. Whether they suit you depends on the size and type of your dealings.
Who can sign the transfer pricing report?
A chartered accountant in practice. The taxpayer assigns the form to the CA on the e-filing portal, the CA uploads it with a digital signature, and the taxpayer then accepts it.
Can you work with group companies outside India?
Yes. Most of the data comes from the Indian entity, and the rest is gathered from group finance teams by email and calls. The engagement letter sets out who provides what and by when.