What is Transfer Pricing?

How it works

Governed by Sections 92-92F, it requires documentation, an accountant's report in Form 3CEB, and can lead to adjustments and penalties where pricing is not at arm's length.

The compliance stack

Indian TP requires: contemporaneous documentation under Rule 10D (the TP study) where international transactions cross thresholds, Form 3CEB certified by a CA for every taxpayer with any international transaction with an associated enterprise (due 31 October), the return by 30 November, and — for larger groups — Master File (Form 3CEAA) and Country-by-Country Reporting (Form 3CEAD).

Worked example

An Indian captive provides software development to its US parent at cost plus 12%. The TP study benchmarks Indian IT-services comparables; suppose the 35th-65th percentile range of net cost-plus margins is 14%-19%. The 12% margin falls below the range — the TPO adjusts to the median, adding the differential to income, with penalty exposure on top. The fix is prospective: reprice the intercompany agreement, or evaluate the Safe Harbour (prescribed margins for eligible IT/ITeS captives) or an APA for multi-year certainty.

Where disputes concentrate

Management-fee benefit evidence, marketing-intangible (AMP) arguments for distributors, guarantee fees, and interest on intra-group loans. The defence is always the same: contemporaneous documentation, FAR analysis matching the contracts, and evidence of actual service receipt. Penalties: 2% of transaction value for documentation failure, Rs.1 lakh for 3CEB non-filing. The TP chapter carries into the Income-tax Act 2025 with machinery intact.

This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.