Finance Bill 2025 introduces amendments to transfer pricing provisions to streamline the determination of arm’s length price (ALP) for international and specified domestic transactions. Currently, ALP is determined annually, creating a repetitive compliance burden. The new proposal allows ALP determined for a given year to apply to similar transactions for the following two years, provided certain conditions are met.
Taxpayers can opt for this multi-year application by submitting a prescribed form within a specified timeframe. The Transfer Pricing Officer (TPO) will validate this option within one month. If approved, the ALP determined for the base year will automatically apply to similar transactions for the next two years, eliminating the need for annual references to the TPO. This change is expected to reduce administrative workload for both taxpayers and tax authorities.
The amendments include changes to Section 92CA and Section 155 of the Income-tax Act, enabling the Assessing Officer to recompute income based on the extended ALP determination. The provisions take effect from April 1, 2026, impacting assessment year 2026-27 onwards. Additionally, the Central Board of Direct Taxes (CBDT) may issue guidelines for implementation, subject to parliamentary approval. These amendments aim to simplify compliance while ensuring consistency in transfer pricing assessments.
Budget 2025: Rationalisation of transfer pricing provisions for carrying out multi-year arm’s length price determination
Transfer pricing provisions enable computation of income arising from an international transaction or a specified domestic transaction with regard to an arm’s length price. These provisions are contained in sections 92 to 92F.
2. Section 92CA provides the procedure governing reference of an international transaction or a specified domestic transaction to the Transfer Pricing Officer (TPO), for computation of their arm’s length price (ALP). Section 92C provides for computation of arm’s length price in relation to an international transaction or a specified domestic transaction.
3. The determination of ALP in transfer pricing provisions inter alia proceeds in the following manner –
- the Assessing Officer (AO) may, refer the computation of the ALP with the previous approval of the Principal Commissioner or Commissioner, in relation to an international transaction or a specified domestic transaction entered in any previous year, to the TPO;
- the TPO determine the ALP in relation to the said transaction in accordance with sub-section (3) of section 92C and sends a copy of his order to the AO and to the assessee;
- the AO shall proceed to compute the total income of the assessee for such previous year under sub-section (4) of section 92C in conformity with the ALP as so determined by the TPO.
4. It has been noted that in reference under section 92CA for computation of arm’s length price, in many cases, there are similar international transactions or specified transactions for various years, same facts like enterprises with whom such transaction is done, proportionate quantum of transaction, location of associated enterprises etc., and same arm’s length analysis are repeated every year, creating compliance burden on the assessee as well as administrative burden on the TPOs. In view of the same, in such situations, it is proposed to carry out TP assessments in a block.
5. It is, therefore, proposed to provide that the ALP determined in relation to an international transaction or a specified domestic transaction for any previous year shall apply to the similar transaction for the two consecutive previous years immediately following such previous year. For the same, it is proposed to make the following amendments,–
5.1 Reference to TPO
(I) the assessee shall be required to exercise an option or options for the above effect in the form, manner and within such time period as may be prescribed [new sub-section (3B) in section 92CA];
(II) the TPO may by an order within one month from the end of the month in which such option is exercised, declare that the option is valid subject to the prescribed conditions [new sub-section (3B) in section 92CA];
(III) if the TPO declares that the option exercised by the assessee is valid,–
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- the ALP determined in relation to an international transaction or a specified domestic transaction for any previous year shall apply to the similar international transaction or the specified domestic transaction for the two consecutive previous years immediately following such previous year [new sub-section (3B) in section 92CA];
- the TPO shall examine and determine the ALP in relation to such similar transaction for such consecutive previous years, in the order referred to in sub-section (3) of section 92CA [new subsection (4A) in section 92CA];
- on receipt of such order from the TPO, the AO shall recompute the total income of the assessee for such consecutive previous years as per the provisions of sub-section (21) of section 155 [new sub-section (4A) in section 92CA];
- no reference for computation of ALP in relation to such transaction shall be made [new first proviso to sub-section (1) of section 92CA];
- if any reference is made in such scenarios, before or after the above declaration by the TPO, the provisions of sub-section (1) of section 92CA shall have the effect as if no reference is made for such transaction [new second proviso to sub-section (1) of section 92CA];
(IV) the provisions of exercising option mentioned above and consequent proceedings, shall not apply to any proceedings under Chapter XIV-B [proviso to new sub-section (3B) in section 92CA];
(V) 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 [new sub-section (11) in section 92CA].
5.2 Recomputation of income under section 155
A 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:-
(I) 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,–
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- in conformity with the ALP so determined by the TPO under sub-section (4A) of section 92CA in respect of such transaction;
- taking into account the directions issued under sub-section (5) of section 144C, if any, for such previous year;
(II) such recomputation 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 such previous year;
(III) the first and second proviso to sub-section (4) of section 92C shall apply to such recomputation;
(IV) such recomputation 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.
6. 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.
[Clauses 21 & 45]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 21 of the Bill seeks to amend section 92CA of the Income-tax Act relating to reference to Transfer Pricing Officer.
Sub-section (1) of the said section provides that 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.
It is proposed to insert a new first proviso to the said sub-section (1) so as to provide 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.
It is further proposed to insert a new second proviso to the said sub-section so as to provide 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 the sub-section (3B), is made before or after such declaration by the Transfer Pricing Officer, the provisions of the said sub-section shall have the effect as if no reference is made for such transaction.
It is also proposed to insert a new sub-section (3B) in the said section so as to provide that 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 conditions, specified therein.
It is also proposed to insert a proviso to the said sub-section (3B) to provide that the provisions of this sub-section shall not apply to any proceedings under Chapter XIV-B.
It is also proposed to insert a new sub-section (4A) in the said section so as to provide that 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.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Sub-section (9) of the said section empowers that the Central Government, may, for the purpose of giving effect to the aforesaid scheme, direct that any of the provisions of the Income-tax Act shall not apply or shall apply with such exceptions, modifications and adaptations as specified.
Proviso to said sub-section provides that no direction shall be issued after the 31st March, 2025.
It is proposed to omit the said proviso.
This amendment will take effect from 1st April, 2025.
It is also proposed to insert a new sub-section (11) in the said section so as to provide that if any difficulty arises in giving effect to the provisions of sub-section (3B) and subsection (4A), the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty, which shall be laid before each House of Parliament and no such guideline shall be made after the expiration of two years from the 1st April, 2026.
It is also proposed to insert a new sub-section (12) in the said section so as to provide that 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.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 21 of the Bill seeks to amend section 92CA of the Income-tax Act relating to reference to Transfer Pricing Officer.
It is proposed to insert a new sub-section (3B) in the said section so as to provide that 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 the specified domestic transaction for two consecutive previous years immediately following such previous year, on fulfilment of the conditions, specified therein. Clause (b) of the said sub-section empowers the Board to make rules on such option or options which are to be exercised. Clause (c) of the said sub-section empowers the Board to make rules providing the conditions subject to which option or options exercised by the assessee will be declared by the Transfer Pricing Officer as valid option.
Clause 45 of the Bill seeks to amend section 155 of the Income-tax Act relating to other amendments.
It is proposed to insert a new sub-section (21) in the said section so as to provide that 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 an option exercised by the assessee as valid option under sub-section (3B) of section 92CA 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,––
(i) in conformity with the arm’s length price so determined by the Transfer Pricing Officer under sub-section (4A) of section 92CA in respect of such transaction;
(ii) taking into account the directions issued under sub-section (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 sub-section (4) of section 92C shall apply thereto.
It is further proposed to insert a new proviso to the said sub-section so as to provide that where the order of assessment or any intimation or deemed intimation under sub-section (1) of section 143, as the case may be, for the said two consecutive previous years is not made within the said period of 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, is made.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
21. Amendment of section 92CA.
In section 92CA of the Income-tax Act,
(a) with effect from the 1st April, 2026,––
(i) in sub-section (1), the following provisos shall be inserted, namely:––
“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.”;
(ii) after sub-section (3A), the following sub-section shall be inserted, namely:––
“(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.”;
(iii) after sub-section (4), the following sub-section shall be inserted, namely:––
“(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.”;
(b) in sub-section (9), the proviso shall be omitted;
(c) after sub-section (10), the following sub-sections shall be inserted with effect from the 1st April, 2026, namely:––
“(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.”.
45. Amendment of section 155.
In section 155 of the Income-tax Act, after sub-section (20), the following sub-section shall be inserted with effect from the 1st April, 2026, namely:––
“(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.”.
