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Transfer Pricing Laws in India
India's transfer pricing law — Sections 92 to 92F of the Income-tax Act, 1961, now carried into the Income Tax Act, 2025 — requires every transaction between associated enterprises to be priced at arm's length. Here is the legal framework, decoded.
Understand Your TP ObligationsThe Statutory Framework
Indian transfer pricing law is built on the arm's length principle: income from an international transaction between associated enterprises (AEs) must be computed at the price unrelated parties would have agreed. The core provisions are:
- Section 92 — income from international transactions to be computed at arm's length price (ALP).
- Section 92A — definition of associated enterprises (26% shareholding, board control, loans, dependence on intangibles, and other deemed links).
- Section 92B — definition of international transaction, including deemed international transactions.
- Section 92BA — specified domestic transactions above Rs. 20 crore.
- Section 92C / Rules 10A–10E — the six prescribed ALP methods and the manner of computation.
- Section 92CA — reference to the Transfer Pricing Officer in assessment.
- Sections 92D and 92E — documentation and the accountant's report in Form 3CEB.
The Six ALP Methods
- Comparable Uncontrolled Price (CUP) method.
- Resale Price Method (RPM).
- Cost Plus Method (CPM).
- Profit Split Method (PSM).
- Transactional Net Margin Method (TNMM) — the most commonly applied in India.
- Other method (Rule 10AB) — any method using prices that would have been charged between unrelated parties.
Method selection and comparable searches are dealt with in our benchmarking analysis and transfer pricing study services.
Recent Developments to Know
- The TP framework is carried into the Income Tax Act, 2025, effective 1 April 2026, with renumbered sections but substantively continuous rules.
- Multi-year ALP: the Finance Act, 2025 introduced an option for the ALP determined for one year to apply to similar transactions for the two following years, reducing repetitive litigation.
- Safe harbour rules and Advance Pricing Agreements (APAs) offer certainty routes outside audit.
- India's rules align broadly with OECD Guidelines and BEPS actions, including Master File and CbC reporting.
Frequently Asked Questions
What is the arm's length price (ALP)?
ALP is the price that would be charged between unrelated enterprises in uncontrolled conditions; Indian law requires income from international transactions and specified domestic transactions between associated enterprises to be computed at this price.
Who are associated enterprises under Section 92A?
Enterprises linked by 26% or more direct or indirect shareholding, common management or control, substantial lending, dependence on intangibles or raw materials, and other deemed relationships listed in Section 92A.
Which methods are prescribed for determining ALP?
Six methods: CUP, Resale Price, Cost Plus, Profit Split, TNMM, and the residual Other method under Rule 10AB; the most appropriate method is selected based on the transaction's facts and available comparables.
Do transfer pricing laws apply to domestic transactions?
Yes. Specified domestic transactions under Section 92BA — chiefly transactions involving tax-holiday units and related entities — attract transfer pricing rules where their aggregate exceeds Rs. 20 crore in a year.
Has the new Income Tax Act, 2025 changed transfer pricing law?
The Income Tax Act, 2025, effective 1 April 2026, carries the transfer pricing framework forward with renumbered provisions; combined with the Finance Act 2025 option to apply one year's ALP to two following years, compliance is steadier but substantively familiar.
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