Draft Rules 77 and 78 of the Income-tax Rules, 2026 provide clarity and flexibility in transfer pricing provisions relating to determination of arm’s length price (ALP). Rule 77 defines important expressions applicable to Rules 78 to 84, including “associated enterprise” as per section 162, “enterprise” as per section 173(b) (extended to cover units, undertakings, or businesses in specified domestic transactions), and “uncontrolled transaction” as one between non-associated enterprises, whether resident or non-resident. It also clarifies that “property” includes tangible and intangible assets, “services” include financial services, and “transaction” covers closely linked transactions. Rule 78 introduces an “other method” under section 165(1)(f), permitting determination of ALP based on prices charged or that would have been charged in comparable uncontrolled transactions between non-associated enterprises under similar circumstances, considering all relevant facts.
Extract of Rule No. 77 and 78 of Draft Income-tax Rules, 2026
Rule 77
Meaning of expressions used in determination of arm’s length price.
For the purpose of this rule and rules 78 to 84,—
(a) “associated enterprise” shall have the same meaning as assigned to it in section 162;
(b) “enterprise” shall have the same meaning as assigned to it in section 173(b) and shall, for the purposes of a specified domestic transaction, include a unit, or an enterprise, or an undertaking or a business of a person who undertakes such transaction;
(c) “uncontrolled transaction” means a transaction between enterprises other than associated enterprises, whether resident or non-resident;
(d) “property” includes goods, articles or things, and intangible property;
(e) “services” include financial services;
(f) “transaction” includes a number of closely linked transactions.
Rule 78
Other method for determination of arm’s length price.
For the purposes of section 165(1)(f), the other method for determination of the arm’s length price in relation to an international transaction or a specified domestic transaction shall be any method which takes into account the price which, —
(a) has been charged or paid; or
(b) would have been charged or paid,
for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.
