Transfer Pricing under Income Tax Act 2025: What Changed?

Introduction

India’s Income-tax Act, 2025, effective from 1 April 2026, is primarily a legislative restructuring exercise intended to simplify tax law through clearer language, logical grouping of provisions, and removal of redundant explanations. While the fundamental principles governing transfer pricing remain largely unchanged, tax professionals cannot assume that the transition is merely cosmetic.

The transfer pricing framework has been reorganized from Sections 92 to 92F of the Income-tax Act, 1961 into Sections 161 to 173 of the Income-tax Act, 2025, with several drafting improvements, better structural flow, and consolidation of definitions. Importantly, the Finance Act, 2025 also introduced the concept of Block Transfer Pricing Assessments, aimed at reducing repetitive audits and litigation for recurring transactions.

This article examines:

• Mapping of the old transfer pricing provisions to the new law
• Practical implications for taxpayers
• Documentation checklist for multinational enterprises

Why Was the Transfer Pricing Chapter Rewritten?

The Government has clarified that the objective of the new legislation is simplification rather than substantive policy change. Most transfer pricing concepts—including the Arm’s Length Principle (ALP), FAR analysis, benchmarking methods, documentation, Safe Harbour Rules and Advance Pricing Agreements (APAs)—continue substantially unchanged. The principal changes relate to drafting, organization, and improved readability.

Mapping of Old Sections to the Income-tax Act, 2025

The legislative architecture is now considerably more intuitive, enabling practitioners to locate relevant provisions more efficiently.

Major Changes Every Practitioner Should Know

1. Better Consolidation of Definitions

Earlier, practitioners frequently moved between multiple sections to understand transfer pricing terminology.

Under the new Act:

• Associated Enterprise is comprehensively covered in Section 162.
• International Transaction is reorganized in Section 163.
• Specified Domestic Transactions are separately housed in Section 164.
• General transfer pricing definitions are grouped in Section 173.

This restructuring reduces cross-referencing and improves interpretability without materially changing the legal principles.

2. Arm’s Length Principle Continues Unchanged

Section 161 continues the foundational rule that income arising from international transactions and specified domestic transactions must be computed having regard to the Arm’s Length Price.

Accordingly, taxpayers must still:

• identify controlled transactions;
• perform functional, asset and risk (FAR) analysis;
• select the most appropriate method;
• identify reliable comparables; and
• maintain contemporaneous documentation.

3. No Change in Accepted Transfer Pricing Methods

The recognised transfer pricing methods remain:

• Comparable Uncontrolled Price (CUP)
• Resale Price Method (RPM)
• Cost Plus Method (CPM)
• Profit Split Method (PSM)
• Transactional Net Margin Method (TNMM)
• Any Other Prescribed Method

Consequently, existing benchmarking studies prepared under the 1961 Act remain conceptually relevant under the new legislation.

4. Documentation Framework Becomes More Structured

Section 171 reorganises documentation requirements by clearly specifying the obligation to maintain contemporaneous records supporting the determination of the Arm’s Length Price.

Although the compliance burden is largely unchanged, the statutory language is significantly easier to navigate.

5. Accountant’s Report Continues

The obligation to obtain an accountant’s report for international and specified domestic transactions continues under Section 172.

Therefore, multinational enterprises should continue preparing transfer pricing documentation well before the statutory filing due date.

6. Block Transfer Pricing Assessment – A Significant Reform

One of the most notable substantive developments is the introduction of the Block Transfer Pricing Assessment mechanism through amendments made by the Finance Act, 2025.

Where the Transfer Pricing Officer determines the ALP for a transaction in one year and prescribed conditions are satisfied, the same ALP determination can be applied to similar international or specified domestic transactions for the following two consecutive years, subject to the taxpayer exercising the prescribed option and the TPO validating it. This is intended to reduce repetitive audits, compliance costs, and litigation for recurring transactions.

Practical Implications for Businesses

Multinational Groups

Most existing transfer pricing policies remain valid. However, all internal manuals, compliance checklists, and legal references should be updated to reflect the new section numbering.

Tax Consultants

Professionals should revise:

• TP opinion formats
• Tax audit references
• Due diligence reports
• Litigation submissions
• Client advisories
• Internal training materials

to incorporate the revised statutory references.

Litigation

Judicial precedents delivered under the Income-tax Act, 1961 continue to have persuasive value because the underlying transfer pricing principles remain substantially unchanged, notwithstanding the renumbering of provisions.

Practical Illustration

XYZ India Pvt. Ltd. imports components worth ₹120 crore from its Singapore parent.

Under both the old and new law, the company must:

• identify the international transaction;
• conduct FAR analysis;
• benchmark the transaction using the most appropriate method;
• maintain contemporaneous documentation;
• obtain the accountant’s report; and
• substantiate the Arm’s Length Price during assessment.

The compliance process remains fundamentally the same. The principal difference is that statutory references now point to Sections 161–173 instead of Sections 92–92F.

Transfer Pricing Documentation Checklist

Before filing the return, taxpayers should ensure that they have:

√ Identified all Associated Enterprises.

√ Listed every international and specified domestic transaction.

√ Completed FAR analysis.

√ Selected the Most Appropriate Method.

√ Conducted benchmarking using reliable comparables.

√ Performed economic adjustments where necessary.

√ Prepared a robust transfer pricing study report.

√ Maintained supporting agreements, invoices and inter-company documentation.

√ Obtained the accountant’s report under Section 172.

√ Evaluated eligibility for Safe Harbour Rules or an Advance Pricing Agreement.

√ Considered whether the Block Transfer Pricing Assessment mechanism can be utilised for recurring transactions.

Conclusion

The transfer pricing chapter under the Income-tax Act, 2025 represents evolution rather than revolution. The Government has retained India’s internationally accepted transfer pricing framework while improving legislative readability through logical restructuring and simplified drafting. The migration from Sections 92–92F to Sections 161–173 should therefore be viewed as a compliance transition rather than a substantive policy shift.

For taxpayers, the immediate priority is to update documentation, compliance manuals, and statutory references. Looking ahead, the introduction of the Block Transfer Pricing Assessment mechanism has the potential to meaningfully reduce repetitive transfer pricing audits for recurring transactions, provided taxpayers satisfy the prescribed conditions.

In an era of increasing scrutiny over cross-border transactions, maintaining robust documentation, defensible benchmarking analyses, and proactive transfer pricing governance will continue to be the cornerstone of tax risk management under the new legislative framework.