Section 92CA of the Income Tax Act outlines the process for referencing the computation of arm’s length prices in international or specified domestic transactions to the Transfer Pricing Officer (TPO). The section empowers the Assessing Officer (AO) to refer such transactions to the TPO, subject to approval from the Principal Commissioner or Commissioner. Amendments to Section 92CA introduce a provision where no reference will be made if the option exercised under Section 92C(3B) by the assessee is declared valid by the TPO for a given year. The TPO, upon receiving a reference, can evaluate related evidence and determine the arm’s length price. The provision extends the TPO’s powers to address unreported transactions discovered during proceedings. The amendments also include measures to streamline the process, ensuring efficiency and transparency through technology and dynamic jurisdiction. A scheme introduced by the Central Government under Section 92CA(8) optimizes resource utilization and eliminates direct interaction between taxpayers and the TPO, enhancing procedural clarity and accountability.
BUDGET 2025-TP AMENDMENTS
1. TRANSFER PRICING MAJOR AMENDMENTS:
Key Highlights:
> Rationalisation of transfer pricing provisions for carrying out multi-year Arm’s Length Price determination
> Recomputation of income under section 155 (21) (Section 155)
1. TRANSFER PRICING PROPOSALS:
1.1 Section 92CA- Reference to Transfer pricing Officer
| Existing Provisions | Amended Provisions | Detailed Analysis of Amendment to Section 92CA: |
| Reference to Transfer pricing Officer
92CA. (1) Where any person, being the assessee, has entered into an international transaction or specified domestic transaction] in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Principal Commissioner or Commissioner, refer the computation of the arm’s length price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer. (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the international transaction or specified domestic transaction referred to in sub-section (1). (2A) Where any other international transaction other than an international transaction referred under sub-section (1), comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1). (2B) Where in respect of an international transaction or a specified domestic transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this Chapter shall apply as if such transaction is an international transaction referred to him under sub-section (1).
(2C) Nothing contained in sub-section (2B) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012. (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the international transaction or specified domestic transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee. (3A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires: Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation 1 to section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly. (4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm’s length price as so determined by the Transfer Pricing Officer. (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly. (6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such an order of the Transfer Pricing Officer. (7) The Transfer Pricing Officer may, for the purposes of determining the arm’s length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133 or section 133A. (8) The Central Government may make a scheme, by notification in the Official Gazette, for the purpose of determination of the arm’s length price under sub-section (3), so as to impart greater efficiency, transparency and accountability by— (a) eliminating the interface between the Transfer Pricing Officer and the assessee or any other person to the extent technologically feasible; (b) optimising utilisation of the resources through economies of scale and functional specialisation; (c) introducing a team-based determination of arm’s length price with dynamic jurisdiction. (9) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (8), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification: Provided that no direction shall be issued after the 31st day of March, 2025. (10) Every notification issued under sub-section (8) and sub-section (9) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.] Explanation.—For the purposes of this section, “Transfer Pricing Officer” means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons. |
Reference to Transfer pricing Officer
92CA. (1) Where any person, being the assessee, has entered into an international transaction or specified domestic transaction] in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Principal Commissioner or Commissioner, refer the computation of the arm’s length price in relation to the said international transaction or specified domestic transaction under section 92C to the Transfer Pricing Officer. “Provided that no reference for computation of the arm’s length price in relation to an international transaction or a specified domestic transaction shall be made, if the Transfer Pricing Officer has declared that option exercised by the assessee in sub-section (3B) in relation to such transaction is valid for such previous year: Provided further that if any reference for an international transaction or a specified domestic transaction, in respect of a previous year, for which the option is declared valid under sub-section (3B) is made before or after such declaration by the Transfer Pricing Officer, the provisions of this sub-section shall have the effect as if no reference is made for such transaction.”; (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the international transaction or specified domestic transaction referred to in sub-section (1). (2A) Where any other international transaction other than an international transaction referred under sub-section (1), comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1). (2B) Where in respect of an international transaction or a specified domestic transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this Chapter shall apply as if such transaction is an international transaction referred to him under sub-section (1). (2C) Nothing contained in sub-section (2B) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012. (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the international transaction or specified domestic transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee. (3A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires: Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation 1 to section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly. “(3B) The arm’s length price, being determined in relation to the international transaction or the specified domestic transaction under sub-section (3) for any previous year shall apply to similar international transaction or specified domestic transaction for the two consecutive previous years immediately following such previous year, on fulfilment of the following conditions, namely:–– (a) the assesee exercises an option or options to the above effect for the said two consecutive previous years; (b) such option or options are exercised in such form, manner and within such period as prescribed; and, (c) the Transfer Pricing Officer shall, within one month from the end of the month in which such option or options are exercised, by an order in writing, declare that such option or options are valid subject to the conditions, as prescribed: Provided that the provisions of this subsection shall not apply to any proceedings under Chapter XIV-B[1].”; (4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm’s length price as so determined by the Transfer Pricing Officer. “(4A) Notwithstanding anything contained in sub-section (4), where the Transfer Pricing Officer has declared an option exercised by the assessee as valid option under sub-section (3B), he shall examine and determine the arm’s length price in relation to such similar transaction for two consecutive previous years immediately following such previous year, in the order referred to in sub-section (3) and on receipt of such order, the Assessing Officer shall proceed to recompute the total income of the assessee for the said two consecutive previous years as per the provisions of sub-section (21) of section 155.”; (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly. (6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such an order of the Transfer Pricing Officer. (7) The Transfer Pricing Officer may, for the purposes of determining the arm’s length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133 or section 133A. (8) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of determination of the arm’s length price under sub-section (3), so as to impart greater efficiency, transparency and accountability by— a) eliminating the interface between the Transfer Pricing Officer and the assessee or any other person to the extent technologically feasible; (b) optimising utilisation of the resources through economies of scale and functional specialisation; (c) introducing a team-based determination of arm’s length price with dynamic jurisdiction. (9) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (8), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification: Provided that no direction shall be issued after the 31st day of March, 2025. (10) Every notification issued under sub-section (8) and sub-section (9) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.] “(11) If any difficulty arises in giving effect to the provisions of sub-sections (3B) and (4A), the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing such difficulty: Provided that no such guideline shall be made after the expiration of two years from the 1st April, 2026. (12) Every guideline issued by the Board under sub-section (11) shall be laid before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive session aforesaid, both houses agree in making any modification in such guideline or both Houses agree that the guideline, should not be issued, the guideline shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that guideline.”. Explanation.—For the purposes of this section, “Transfer Pricing Officer” means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorized by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons. |
The transfer pricing provisions provide a framework for calculating income from an international transaction or specified domestic transaction with regard to the arm’s length price. These provisions are outlined in Sections 92 to 92F. Section 92CA outlines the procedure for referring an international transaction or specified domestic transaction to the Transfer Pricing Officer (TPO) for the determination of their arm’s length price (ALP).
The Government, in the budget, has amended Section 92CA and introduced certain sub sections to provide greater stability and predictability in the application of transfer pricing rules for international transactions and specified domestic transactions. By allowing the arm’s length price (ALP) to be determined in one year to be applied to similar transactions in the two consecutive subsequent years, the provision aims to: Minimize Compliance Burden This provision streamlines the compliance process for the assessee by obviating the need for frequent reassessments of transfer prices for similar transactions in subsequent years. Ensure Consistency in Pricing By allowing the assessee to apply the arm’s length price (ALP) determined for a given year to similar transactions in the subsequent years, it ensures continuity in transfer pricing practices across multiple years, thereby mitigating any potential fluctuations in tax positions Provide Certainty to Assessee For multinational enterprises (MNEs), this provision helps ensure that once a transfer pricing method is accepted for a given year, they can use it for the next two years without worrying about sudden adjustments or disputes, provided the transactions are similar. This provides predictability for tax planning and minimizes the risk of unexpected tax adjustments in the future. Facilitate Tax Administration By allowing the Transfer Pricing Officer (TPO) to confirm the validity of the option exercised by the assessee, the provision ensures that both assessee and the tax authorities follow a structured and transparent process for determining the ALP over multiple years. It sets a clear timeline within which the TPO must review and approve the assessee’s exercise of the option. These amendments will take effect from the 1st day of April, 2026 and shall accordingly apply in relation to the assessment year 2026-27 and subsequent assessment years. Conditions for Applying ALP to the Next Two Years Sub section (3B) outlines specific conditions under which the ALP determined for the first year can be applied for the subsequent two years. These conditions are outlined as follows: (a) The Assessee exercises an Option or Options
(b) Form, Manner, and Period for Exercising the Option
(c) Order from the TPO
Further, the TPO must determine whether the option exercised by the assessee is valid under sub-section (3B). If the TPO considers the option valid, this enables the following: Arm’s Length Price Determination: The TPO is then required to examine and set the arm’s length price (ALP). Focus on Similar Transactions: The TPO must focus on similar transactions to determine whether the prices applied by the assessee are within the arm’s length range. Two Consecutive Previous Years: The TPO must assess transactions for two consecutive years immediately following the year for which the option is exercised. This is important because transfer pricing adjustments can have a multi-year impact.
The provisions of the exercise option mentioned above, and consequent proceedings shall not apply to any proceedings under Chapter XIV-B. If any difficulty arises in giving effect to the provisions of sub-section (3B) and sub-section (4A) of section 92CA, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty and every guideline issued by the Board shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and the assessee. Re-computation of income under section 155 Additionally, new sub-section (21) shall be inserted in section 155, so that where the ALP determined for an international transaction or a specified domestic transaction for any previous year and the TPO has declared an option exercised by the assessee as valid option in respect of such transaction for two consecutive previous years immediately following such previous year, then: 1. The AO shall recompute the total income of the assessee for such consecutive previous years, by amending the order of assessment or any intimation or deemed intimation under sub-section (1) of section 143, –
2. Such re-computation shall be done within three months from the end of the month in which the assessment is completed in the case of the assessee for the previous year. 3. The first and second proviso to sub-section (4) of section 92C shall apply to such re-computation. 4. Such re-computation shall be made within three months from the end of the month in which order of assessment or any intimation or deemed intimation is made, in case that is not made before the period of three months as mentioned above. Questions for further discussion / clarifications: 1. Clarifications on “similar transactions”. 2. Notification or Circular outlining the process and forms for claiming the option(s). 3. Clarification on the timing for the assessee to file the application to claim the option(s). |
1.2 Section 155: Other Amendments.
| Inserted Provisions |
| After sub section 20 to section 155, the following sub section is inserted:
“(21) Where the arm’s length price is determined in relation to an international transaction or a specified domestic transaction under sub-section (3) of section 92CA for any previous year and the Transfer Pricing Officer has declared that an option exercised by the assessee is valid under sub-section (3B) of the said section in respect of such transaction for two consecutive previous years immediately following such previous year, the Assessing Officer shall proceed to recompute the total income of the assessee for the said two consecutive previous years, by amending the order of assessment or any intimation or deemed intimation under sub-section (1) of section 143, as the case may be,–– (a) in conformity with the arm’s length price so determined by the Transfer Pricing Officer under subsection (4A) of the said section in respect of such transaction; and (b) taking into account the directions issued under subsection (5) of section 144C, if any, for such previous year, within three months from the end of the month in which the assessment is completed in the case of the assessee for such previous year, and the first and second provisos to subsection (4) of section 92C shall apply thereto: Provided that where the order of assessment or any intimation or deemed intimation under sub-section (1) of section 143, for the said two consecutive previous years is not made within the said three months, such recomputation shall be made within three months from the end of the month in which such order of assessment or any intimation or deemed intimation under sub-section (1) of section 143, as the case may be, is made.”. |
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[1] Chapter XIV-B Special Procedure for Assessment of Search Cases
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