Transfer Pricing under Income Tax Act: ALP, AEs & Compliance Framework

Income Tax Department
Ministry of Finance, Government of India

Transfer Pricing

Introduction

Transfer Pricing regulations aim to curb profit shifting by multinational enterprises (MNEs) through the manipulation of intra-group prices. Introduced by the Finance Act, 2001, these provisions ensure that income from international or specified domestic transactions is computed at arm’s length price (ALP), thereby safeguarding India’s tax base. From A.Y. 2013-14, the scope was extended to cover specified domestic transactions as well.

Applicability of Transfer Pricing Provisions

Transfer pricing rules apply when:

• There is an international or specified domestic transaction.
• The transaction occurs between two or more associated enterprises (AEs).
• The transaction is not conducted at arm’s length price (ALP).

ALP is the price applied in a transaction between unrelated parties under uncontrolled conditions.

Associated Enterprise (AE)

An AE is an entity, an enterprise that participates directly/indirectly in management, control or capital of another enterprise, or where one/more persons participate in the management/control/capital of two enterprises.

Further, Section 92A(2) lists 13 specific deeming criteria to identify control through shareholding, loans, guarantees, or supply dependence. Two enterprises are deemed associated if any of the following conditions exist during the previous year:

• One holds 26%+ voting power in the other
• Same person holds 26%+ voting power in both
• Loan from one to other constitutes 51%+ of book value of total assets
• One guarantees 10%+ of other’s total borrowings
• One appoints majority of board/executive directors of other
• Same person appoints majority of board/executive directors of both
• One’s business fully dependent on other’s know-how/patents/copyrights
• 90%+ raw materials supplied by other with influenced pricing/conditions
• Goods manufactured by one sold to other with influenced pricing/conditions
• Both controlled by same individual/HUF or relatives
• One is firm/AOP/BOI and other holds 10%+ interest
• Any prescribed mutual interest relationship exists

International Transaction

It includes any transaction between AEs (one of which is a non-resident) involving purchase, sale, lease of property, provision of services, or finance, having a bearing on profits, income, or assets. Even third-party transactions may be deemed international if structured through an AE.

Specified Domestic Transaction

These cover certain domestic transactions, such as inter-unit transfers under Section 80A, dealings under Section 80-IA(8)/(10), and transactions under Sections 10AA, 115BAB(6), or 115BAE(4), provided the aggregate of the transactions exceeds Rs. 20 crore in a financial year.

Methods for Determining ALP

The most appropriate method must be selected from:

• Comparable Uncontrolled Price (CUP) Method
• Resale Price Method
• Cost Plus Method
• Profit Split Method
• Transactional Net Margin Method
• Other prescribed methods

When multiple prices result, the ALP is the arithmetic mean unless the variation from the actual price is within the notified tolerance limits (1% or 3% as per Notification No. 46/2023).

Computation of Income

Income, expenses, or cost-sharing among AEs or related domestic entities are computed with reference to ALP. Adjustments that reduce income or enhance loss are disallowed.

Role of Assessing Officer (AO) and Transfer Pricing Officer (TPO)

If the AO suspects ALP is not determined correctly or documents are missing, a reference may be made to the TPO with prior approval. TPOs have powers of inquiry and their order is binding on the AO.

Block TP Assessment

The Finance Act, 2025 has amended the transfer pricing (TP) provisions under Sections 92CA and 155 of the Income-tax Act to introduce the concept of block TP assessment. The key objective is to reduce repetitive litigation and compliance burden by allowing the application of the Arm’s Length Price (ALP) determined for one year to similar international or specified domestic transactions (IT/SDT) in the following two years, subject to prescribed conditions.

Key Conditions for Block TP Assessment

• The assessee must exercise the option in the prescribed form, manner and time for both subsequent years.
• The transactions in the following two years must be “similar” to those for which ALP was determined in the base year.
• The TPO must validate the option within one month of its exercise.
• The provisions are not applicable in search and seizure cases.

Advance Pricing Agreement (APA)

An APA is an agreement between CBDT and the taxpayer to pre-determine ALP or the method of determination for up to five future years. A rollback provision extends the applicability to four preceding years. APAs ensure tax certainty and reduce disputes.

Secondary Adjustment

Where a primary adjustment results in excess money remaining with an AE, such excess must be repatriated. Failing which, it is deemed an advance, and interest is imputed or an additional tax at the rate of 18% may be paid.

Maintenance and furnishing of information and documents

Section 92D mandates every person entering into an international or specified domestic transaction to maintain prescribed information and documents (Rule 10D). Constituent entities of international groups must also maintain group-level documentation (Rule 10DA).

Furnishing Requirement

The Assessing Officer or Commissioner (Appeals) may require such information to be furnished within 10 days of notice, with an extension of up to 30 days upon application.

Submission by Constituent Entities

Constituent entities must furnish group documentation to the prescribed authority under Section 286(1) within the prescribed time and manner.

Dispute Resolution Panel (DRP)

Eligible assessees may approach the DRP against any variations proposed in income by the AO or TPO. DRP’s directions are binding on the AO.

Country-by-Country Reporting (CbCR)

Applicable to international groups with consolidated revenues exceeding ₹6,400 crore. The parent or constituent entity must file CbCR to enhance transparency and facilitate BEPS compliance.

Safe Harbour Rules

These allow taxpayers to opt for prescribed ALPs in eligible international transactions, minimizing litigation and compliance burden. See rule 10TA to 10TG for more.

Limitation on Interest Deduction in Certain Cases

Section 94B restricts interest deduction for Indian companies and permanent establishments (PEs) of foreign companies if interest paid to non-resident associated enterprises exceeds Rs. 1 crore.

Interest Deduction Limit

Deduction is limited to 30% of EBITDA or actual interest paid to associated enterprises—whichever is lower.

Deemed AE Loans

Loans from unrelated parties are deemed from an associated enterprise if a group entity guarantees or funds the lender.

Circulars and Notifications

• Notification No. 46/2023, dated 26.06.2023 – Specifies tolerance limits for determining ALP.
• Circular No. 10/2015, dated 10.06.2016 – Clarifies APA rollback provisions and compliance requirements.

Income Tax Rules

Rule – 10A

Meaning of expressions used in computation of arm’s length price. 10A. For the purposes of this rule and rules 10AB to 10E,—

(a) “associated enterprise” shall,—

(i) have the same meaning as assigned to it in section 92A; and

(ii) in relation to a specified domestic transaction entered into by an assessee, include—

(A) the persons referred to in clause (b) of sub-section (2) of section 40A in respect of a transaction referred to in clause (a) of sub-section (2) of the said section;

(B) other units or undertakings or businesses of such assessee in respect of a transaction referred to in section 80A or, as the case may be, sub-section (8) of section 80-IA;

(C) any other person referred to in sub-section (10) of section 80-IA in respect of a transaction referred to therein;

(D) other units, undertakings, enterprises or business of such assessee, or other person referred to in sub-section (10) of section 80-IA, as the case may be, in respect of a transaction referred to in section 10AA or the transactions referred to in Chapter VI-A to which the provisions of sub-section (8) or, as the case may be, the provisions of sub-section (10) of section 80-IA are applicable;

(aa) “enterprise” shall have the same meaning as assigned to it in clause (iii) of section 92F 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;

(ab) “uncontrolled transaction” means a transaction between enterprises other than associated enterprises, whether resident or non-resident;

(b) “property” includes goods, articles or things, and intangible property;

(c) “services” include financial services;

(d) “transaction” includes a number of closely linked transactions.

Rule – 10B

Determination of arm’s length price under section 92C.

10B. (1) For the purposes of sub-section (2) of section 92C, the arm’s length price in relation to an international transaction or a specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :—

a. comparable uncontrolled price method, by which,—

i. the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified;

ii. such price is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market;

iii. the adjusted price arrived at under sub-clause (ii) is taken to be an arm’s length price in respect of the property transferred or services provided in the international transaction or the specified domestic transaction ;

b. resale price method, by which,—

i. the price at which property purchased or services obtained by the enterprise from an associated enterprise is resold or are provided to an unrelated enterprise, is identified;

ii. such resale price is reduced by the amount of a normal gross profit margin accruing to the enterprise or to an unrelated enterprise from the purchase and resale of the same or similar property or from obtaining and providing the same or similar services, in a comparable uncontrolled transaction, or a number of such transactions;

iii. the price so arrived at is further reduced by the expenses incurred by the enterprise in connection with the purchase of property or obtaining of services;

iv. the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market;

v. the adjusted price arrived at under sub-clause (iv) is taken to be an arm’s length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise;

c. cost plus method, by which,—

i. the direct and indirect costs of production incurred by the enterprise in respect of property transferred or services provided to an associated enterprise, are determined;

ii. the amount of a normal gross profit mark-up to such costs (computed according to the same accounting norms) arising from the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a comparable uncontrolled transaction, or a number of such transactions, is determined;

iii. the normal gross profit mark-up referred to in sub-clause (ii) is adjusted to take into account the functional and other differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect such profit mark-up in the open market;

iv. the costs referred to in sub-clause (i) are increased by the adjusted profit mark-up arrived at under sub-clause (iii);

v. the sum so arrived at is taken to be an arm’s length price in relation to the supply of the property or provision of services by the enterprise;

d. profit split method, which may be applicable mainly in international transactions or specified domestic transactions involving transfer of unique intangibles or in multiple international transactions or specified domestic transactions which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm’s length price of any one transaction, by which—

i. the combined net profit of the associated enterprises arising from the international transaction or the specified domestic transaction in which they are engaged, is determined;

ii. the relative contribution made by each of the associated enterprises to the earning of such combined net profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks assumed by each enterprise and on the basis of reliable external market data which indicates how such contribution would be evaluated by unrelated enterprises performing comparable functions in similar circumstances;

iii. the combined net profit is then split amongst the enterprises in proportion to their relative contributions, as evaluated under sub-clause (ii);

iv. the profit thus apportioned to the assessee is taken into account to arrive at an arm’s length price in relation to the international transaction or the specified domestic transaction :

Provided that the combined net profit referred to in sub-clause (i) may, in the first instance, be partially allocated to each enterprise so as to provide it with a basic return appropriate for the type of international transaction or specified domestic transaction in which it is engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction or the specified domestic transaction ;

e. transactional net margin method, by which,—

i. the net profit margin realised by the enterprise from an international transaction or a specified domestic transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base;

ii. the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base;

iii. the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;

iv. the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii);

v. the net profit margin thus established is then taken into account to arrive at an arm’s length price in relation to the international transaction or the specified domestic transaction;

f. any other method as provided in rule 10AB.

(2) For the purposes of sub-rule (1), the comparability of an international transaction or a specified domestic transaction with an uncontrolled transaction shall be judged with reference to the following, namely:—

a. the specific characteristics of the property transferred or services provided in either transaction;

b. the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions;

c. the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions;

d. conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.

(3) An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if—

(i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or

(ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.

(4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be the data relating to the financial year 81[(hereafter in this rule and in rule 10CA referred to as the ‘current year’)] in which the international transaction or the specified domestic transaction has been entered into:

Provided that data relating to a period not being more than two years prior to 82[the current year] may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared:

81[Provided further that the first proviso shall not apply while analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014.]

81[(5) In a case where the most appropriate method for determination of the arm’s length price of an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014, is the method specified in clause (b), clause (c) or clause (e) of sub-section (1) of section 92C, then, notwithstanding anything contained in sub-rule (4), the data to be used for analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be,—

(i) the data relating to the current year ; or

(ii) the data relating to the financial year immediately preceding the current year, if the data relating to the current year is not available at the time of furnishing the return of income by the assessee, for the assessment year relevant to the current year:

Provided that where the data relating to the current year is subsequently available at the time of determination of arm’s length price of an international transaction or a specified domestic transaction during the course of any assessment proceeding for the assessment year relevant to the current year, then, such data shall be used for such determination irrespective of the fact that the data was not available at the time of furnishing the return of income of the relevant assessment year.

Notes:

⁸¹ Inserted by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015.

⁸² Substituted for “such financial year” by the IT (Sixteenth Amdt.) Rules, 2015, w.e.f. 19-10-2015.

Rule – 10C

Most appropriate method.

10C. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction, and which provides the most reliable measure of an arm’s length price in relation to the international transaction or the specified domestic transaction, as the case may be.

(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:—

(a) the nature and class of the international transaction or the specified domestic transaction;

(b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises;

(c) the availability, coverage and reliability of data necessary for application of the method;

(d) the degree of comparability existing between the international transaction or the specified domestic transaction and the uncontrolled transaction and between the enterprises entering into such transactions;

(e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions;

(f) the nature, extent and reliability of assumptions required to be made in application of a method.

Rule – 10D

Information and documents to be kept and maintained under section 92D.

10D. (1) Every person who has entered into an international transaction or a specified domestic transaction shall keep and maintain the following information and documents, namely:—

a. a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises;

b. a profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions or specified domestic transactions, as the case may be, have been entered into by the assessee, and ownership linkages among them;

c. a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted;

d. the nature and terms (including prices) of international transactions or specified domestic transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction;

e. a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction or the specified domestic transaction;

f. a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions or the specified domestic transactions entered into by the assessee;

g. a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions or the specified domestic transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions or specified domestic transactions, as the case may be;

h. a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction or specified domestic transaction;

i. a description of the methods considered for determining the arm’s length price in relation to each international transaction or specified domestic transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case;

j. a record of the actual working carried out for determining the arm’s length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions;

k. the assumptions, policies and price negotiations, if any, which have critically affected the determination of the arm’s length price;

l. details of the adjustments, if any, made to transfer prices to align them with arm’s length prices determined under these rules and consequent adjustment made to the total income for tax purposes;

m. any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arm’s length price.

(2) Nothing contained in sub-rule (1), in so far as it relates to an international transaction, shall apply in a case where the aggregate value, as recorded in the books of account, of international transactions entered into by the assessee does not exceed one crore rupees :

Provided that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transactions entered into by him has been computed in accordance with section 92.

(2A) Nothing contained in sub-rule (1), in so far as it relates to an eligible specified domestic transaction referred to in rule 10THB, shall apply in a case of an eligible assessee mentioned in rule 10THA and—

a. the eligible assessee, referred to in clause (i) of rule 10THA, shall keep and maintain the following information and documents, namely:—

i. a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises;

ii. a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted;

iii. the nature and terms (including prices) of specified domestic transactions entered into with each associated enterprise and the quantum and value of each such transaction or class of such transaction;

iv. a record of proceedings, if any, before the regulatory commission and orders of such commission relating to the specified domestic transaction;

v. a record of the actual working carried out for determining the transfer price of the specified domestic transaction;

vi. the assumptions, policies and price negotiations, if any, which have critically affected the determination of the transfer price; and

vii. any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the transfer price;

b. the eligible assessee, referred to in clause (ii) of rule 10THA, shall keep and maintain the following information and documents, namely:—

i. a description of the ownership structure of the assessee co-operative society with details of shares or other ownership interest held therein by the members;

ii. description of members including their addresses and period of membership;

iii. the nature and terms (including prices) of specified domestic transactions entered into with each member and the quantum and value of each such transaction or class of such transaction;

iv. a record of the actual working carried out for determining the transfer price of the specified domestic transaction;

v. the assumptions, policies and price negotiations, if any, which have critically affected the determination of the transfer price;

vi. the documentation regarding price being routinely declared in transparent manner and being available in public domain; and

vii. any other information, data or document which may be relevant for determination of the transfer

(3) The information specified in 92[sub-rules (1) and (2A)] shall be supported by authentic documents, which may include the following :

a. official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country;

b. reports of market research studies carried out and technical publications brought out by institutions of national or international repute;

c. price publications including stock exchange and commodity market quotations;

d. published accounts and financial statements relating to the business affairs of the associated enterprises;

e. agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions or the specified domestic transactions, as the case may be;

f. letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise;

g. documents normally issued in connection with various transactions under the accounting practices

(4) The information and documents specified under 93[sub-rules (1), (2) and (2A)], should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F:

Provided that where an international transaction or a specified domestic transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction or the specified domestic transaction, as the case may be, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under 93[sub-rules (1), (2) and (2A)] shall be maintained bringing out the impact of the change on the pricing of the international transaction or the specified domestic transaction.

(5) The information and documents specified in 93[sub-rules (1), (2) and (2A)] shall be kept and maintained for a period of eight years from the end of the relevant assessment year.

Notes:

⁹¹ Substituted by the IT (Nineteenth ) Rules, 2015, w.e.f. 8-12-2015.

⁹² Substituted for “sub-rule (1)” by the IT (Second ) Rules, 2015, w.e.f. 4-2-2015.

⁹³ Substituted for “sub-rules (1) and (2)” by the IT (Second ) Rules, 2015, w.e.f. 4-2-2015.

Rule – 10DA

94[95[Maintenance and furnishing of information and document by certain person under section 92D.]

10DA. (1) Every person, being a constituent entity of an international group shall,—

i. if the consolidated group revenue of the international group, of which such person is a constituent entity, as reflected in the consolidated financial statement of the international group for the accounting year, exceeds five hundred crore rupees; and

ii. the aggregate value of international transactions,—

A. during the accounting year, as per the books of account, exceeds fifty crore rupees, or

B. in respect of purchase, sale, transfer, lease or use of intangible property during the accounting year, as per the books of account, exceeds ten crore rupees,

keep and maintain the following information and documents of the international group, namely:—

a. a list of all entities of the international group along with their addresses;

b. a chart depicting the legal status of the constituent entity and ownership structure of the entire international group;

c. a description of the business of international group during the accounting year including,—

I. the nature of the business or businesses;

II. the important drivers of profits of such business or businesses;

III. a description of the supply chain for the five largest products or services of the international group in terms of revenue and any other products including services amounting to more than five per cent of consolidated group revenue;

IV. a list and brief description of important service arrangements made among members of the international group, other than those for research and development services;

V. a description of the capabilities of the main service providers within the international group;

VI. details about the transfer pricing policies for allocating service costs and determining prices to be paid for intra-group services;

VII. a list and description of the major geographical markets for the products and services offered by the international group;

VIII. a description of the functions performed, assets employed and risks assumed by the constituent entities of the international group that contribute at least ten per cent of the revenues or assets or profits of such group; and

IX. a description of the important business restructuring transactions, acquisitions and divestments;

d. a description of the overall strategy of the international group for the development, ownership and exploitation of intangible property, including location of principal research and development facilities and their management;

e. a list of all entities of the international group engaged in development and management of intangible property along with their addresses;

f. a list of all the important intangible property or groups of intangible property owned by the international group along with the names and addresses of the group entities that legally own such intangible property;

g. a list and brief description of important agreements among members of the international group related to intangible property, including cost contribution arrangements, principal research service agreements and license agreements;

h. a detailed description of the transfer pricing policies of the international group related to research and development and intangible property;

i. a description of important transfers of interest in intangible pro-perty, if any, among entities of the international group, including the name and address of the selling and buying entities and the compensation paid for such transfers;

j. a detailed description of the financing arrangements of the international group, including the names and addresses of the top ten unrelated lenders;

k. a list of group entities that provide central financing functions, including their place of operation and of effective management;

l. a detailed description of the transfer pricing policies of the international group related to financing arrangements among group entities;

m. a copy of the annual consolidated financial statement of the international group; and

n. a list and brief description of the existing unilateral advance pricing agreements and other tax rulings in respect of the international group for allocation of income among countries.

96[(2) The information and document specified under sub-rule (1) shall be furnished to the Joint 97[Director] referred to in sub-rule (1) of rule 10DB, in Form No. 3CEAA on or before the due date for furnishing the return of income as specified under sub-section (1) of section 139.

(3) The constituent entity shall furnish Part A of Form No. 3CEAA even if the conditions specified under sub-rule (1) are not satisfied.

(4) Where there are more than one 98[constituent entities of an international group required to file the information and document under sub-rule (2)], the Form No. 3CEAA may be furnished by any one constituent entity, if,—

a. the international group has designated such entity for this purpose; and

b. the information has been conveyed in Form No. 3CEAB to the Joint 99[Director] referred to in sub-rule (1) of rule 10DB, in this behalf thirty days before the due date of furnishing the Form No. 3CEAA.]

1[(5)] The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, shall specify the procedure for electronic filing of Form No. 3CEAA and Form No. 3CEAB and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the information furnished under this rule.

1[(6)] The information and documents specified in sub-rule (1) shall be kept and maintained for a period of eight years from the end of the relevant assessment year.

1[(7)] The rate of exchange for the calculation of the value in rupees of the consolidated group revenue in foreign currency shall be the telegraphic transfer buying rate of such currency on the last day of the accounting year.

Explanation.—For the purposes of this rule,—

A. “telegraphic transfer buying rate” shall have the same meaning as assigned in the Explanation to rule 26;

B. the terms “accounting year”, “consolidated financial statement” and “international group” shall have the same meaning as assigned in sub-section (9) of section 286.

Notes:

⁹⁴ Rules 10DA and 10DB inserted by the IT (Twenty-fourth Amdt.) Rules, 2017, w.e.f. 31-10-2017.

⁹⁵ Substituted for “Information and documents to be kept and maintained under proviso to sub-section (1) of section 92D and to be furnished in terms of sub-section (4) of section 92D.” by the IT (Second Amdt.) Rules, 2020, w.e.f. 1-4-2020.

⁹⁶ Sub-rules (2), (3) and (4) substituted for sub-rules (2), (3), (4) and (5) by the IT (Second Amdt.) Rules, 2020, w.e.f. 1-4-2020.

⁹⁷ Substituted for “Commissioner” by the IT (Ninth Amdt.) Rules, 2021, w.r.e.f. 1-4-2021.

⁹⁸ Substituted for “constituent entities resident in India of an international group” by the IT (Ninth Amdt.) Rules, 2021, w.r.e.f. 1-4-2021.

⁹⁹ Substituted for “Commissioner” by the IT (Ninth Amdt.) Rules, 2021, w.r.e.f. 1-4-2021.

¹ Sub-rules (6), (7) and (8) renumbered as sub-rules (5), (6) and (7), respectively, by the IT (Second Amdt.) Rules, 2020, w.e.f. 1-4-2020.

Rule – 10DB

Furnishing of Report in respect of an International Group.

10DB. ²[³[(1) The income-tax authority for the purposes of section 286 shall be the Joint Director as may be designated by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be.]

(2) The notification under sub-section (1) of section 286 shall be made in Form No. 3CEAC two months prior to the due date for furnishing of report as specified under sub-section (2) of said section.]

(3) Every parent entity or the alternate reporting entity, as the case may be, resident in India, shall, for every reporting accounting year, furnish the report referred to in sub-section (2) of section 286 ⁴[***] in Form No. 3CEAD.

⁵[(4) The period for furnishing of the report under sub-section (4) of section 286 by the constituent entity referred to in that sub-section shall be twelve months from the end of the reporting accounting year:

Provided that in case the parent entity of the constituent entity is resident of a country or territory, where, there has been a systemic failure of the country or territory and the said failure has been intimated to such constituent entity, the period for submission of the report shall be six months from the end of the month in which said systemic failure has been intimated.]

⁶[(5) The information required to be conveyed under proviso to sub-section (4) of section 286 regarding the designated constituent entity shall be furnished in Form No. 3CEAE.]

(6) For the purposes of sub-section (7) of section 286, the total consolidated group revenue of the international group shall be ⁷[six thousand four hundred] crore rupees.

(7) Where the total consolidated group revenue of the international group, as reflected in the consolidated financial statement, is in foreign currency, the rate of exchange for the calculation of the value in rupees of such total consolidated group revenue shall be the telegraphic transfer buying rate of such currency on the last day of the accounting year preceding the accounting year.

(8) The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, shall specify the procedure for electronic filing of Form No. 3CEAC, Form No. 3CEAD and Form No. 3CEAE and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the information furnished under this rule.

Explanation.—For the purposes of this rule,—

(A) “telegraphic transfer buying rate” shall have the same meaning as assigned in the Explanation to rule 26;

(B) the terms “accounting year”, “alternate reporting entity”, “consolidated financial statement”, “international group” and “reporting accounting year” shall have the same meaning as assigned in sub-section (9) of section 286.

Notes:

² Sub-rules (1) and (2) substituted by the IT (Second Amdt.) Rules, 2020, w.e.f. 6-1-2020.

³ Substituted by the IT (Ninth Amdt.) Rules, 2021, w.r.e.f. 1-4-2021.

⁴ Words “to the Director General of Income-tax (Risk Assessment)” omitted by the IT (Second Amdt.) Rules, 2020, w.e.f. 6-1-2020.

⁵ Substituted by the IT (Fourteenth Amdt.) Rules, 2018, w.e.f. 18-12-2018.

⁶ Substituted by the IT (Second Amdt.) Rules, 2020, w.e.f. 6-1-2020.

⁷ Substituted for “five thousand five hundred” by the IT (Ninth Amdt.) Rules, 2021, w.r.e.f. 1-4-2021.

Rule – 10E

Report from an accountant to be furnished under section 92E.

10E. The report from an accountant required to be furnished under section 92E by every person who has entered into an international transaction or a specified domestic transaction during a previous year shall be in Form No. 3CEB and be verified in the manner indicated therein.

Rule – 10F

DA.—Advance Pricing Agreement Scheme

Meaning of expressions used in matters in respect of advance pricing agreement.

10F. For the purposes of this rule and rules 10G to 10T,—

(a) “agreement” means an advance pricing agreement entered into between the Board and the applicant, with the approval of the Central Government, as referred to in sub-section (1) of section 92CC of the Act;

(b) “application” means an application for advance pricing agreement made under rule 10-I;

8[(ba) “applicant” means a person who has made an application;]

(c) “bilateral agreement” means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authority in the other country regarding the most appropriate transfer pricing method or the arms’ length price;

(d) “competent authority in India” means an officer authorised by the Central Government for the purpose of discharging the functions as such for matters in respect of any agreement entered into under section 90 or 90A of the Act;

(e) “covered transaction” means the international transaction or transactions for which agreement has been entered into;

(f) “critical assumptions” means the factors and assumptions that are so critical and significant that neither party entering into an agreement will continue to be bound by the agreement, if any of the factors or assumptions is changed;

(g) “most appropriate transfer pricing method” means any of the transfer pricing method, referred to in sub-section (1) of section 92C of the Act, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or function performed by such persons or such other relevant factors prescribed by the Board under rules 10B and 10C;

(h) “multilateral agreement” means an agreement between the Board and the applicant, subsequent to, and based on, any agreement referred to in rule 44GA between the competent authority in India with the competent authorities in the other countries regarding the most appropriate transfer pricing method or the arms’ length price;

8[(ha) “rollback year” means any previous year, falling within the period not exceeding four previous years, preceding the first of the previous years referred to in sub-section (4) of section 92CC;]

(i) “tax treaty” means an agreement under section 90, or section 90A of the Act for the avoidance of double taxation;

(j) “team” means advance pricing agreement team consisting of income-tax authorities as constituted by the Board and including such number of experts in economics, statistics, law or any other field as may be nominated by the Director General of Income-tax (International Taxation);

(k) “unilateral agreement” means an agreement between the Board and the applicant which is neither a bilateral nor multilateral agreement.

Note:

⁸ Inserted by the IT (Third Amdt.) Rules, 2015, w.e.f. 14-3-2015.

Rule – 10G

Persons eligible to apply.

10G. Any person who—

(i) has undertaken an international transaction; or

(ii) is contemplating to undertake an international transaction,

shall be eligible to enter into an agreement under these rules.

Rule – 10H

Pre-filing consultation.

10H. (1) ⁹[Any] person proposing to enter into an agreement under these rules ¹⁰[may], by an application in writing, make a request for a pre-filing consultation.

(2) The request for pre-filing consultation shall be made in Form No. 3CEC to the Director General of Income-tax (International Taxation).

(3) On receipt of the request in Form No. 3CEC, the team shall hold pre-filing consultation with the person referred to in rule 10G.

(4) The competent authority in India or his representative shall be associated in pre-filing consultation involving bilateral or multilateral agreement.

(5) The pre-filing consultation shall, among other things,—

(i) determine the scope of the agreement;

(ii) identify transfer pricing issues;

(iii) determine the suitability of international transaction for the agreement;

(iv) discuss broad terms of the agreement.

(6) The pre-filing consultation shall—

(i) not bind the Board or the person to enter into an agreement or initiate the agreement process;

(ii) not be deemed to mean that the person has applied for entering into an agreement.

Notes:

⁹ Substituted for “Every” by the IT (Third Amdt.) Rules, 2015, w.e.f. 14-3-2015.

¹⁰ Substituted for “shall” by the IT (Third Amdt.) Rules, 2015, w.e.f. 14-3-2015

Rule – 10-I

Application for advance pricing agreement.

10-I. (1) Any person, ¹¹[referred to in rule 10G] may, if desires to enter into an agreement furnish an application in Form No. 3CED along with the requisite fee.

(2) The application shall be furnished to Director General of Income-tax (International Taxation) in case of unilateral agreement and to the competent authority in India in case of bilateral or multilateral agreement.

(3) Application in Form No. 3CED may be filed by the person referred to in rule 10G at any time—

(i) before the first day of the previous year relevant to the first assessment year for which the application is made, in respect of transactions which are of a continuing nature from dealings that are already occurring; or

(ii) before undertaking the transaction in respect of remaining transactions.

(4) Every application in Form No. 3CED shall be accompanied by the proof of payment of fees as specified in sub-rule (5).

(5) The fees payable shall be in accordance with following table based on the amount of international transaction entered into or proposed to be undertaken in respect of which the agreement is proposed:

Amount of international transaction entered into or proposed to be undertaken in respect of which agreement is proposed during the proposed period of agreement	Fee
Amount not exceeding Rs. 100 crores	10 lacs
Amount not exceeding Rs. 200 crores	15 lacs
Amount exceeding Rs. 200 crores	20 lacs

Note:

11. Substituted for “who has entered into a pre-filing consultation as referred to in rule 10H” by the IT (Third Amdt.) Rules, 2015, w.e.f. 14-3-2015.

Rule – 10J

Withdrawal of application for agreement.

10J. (1) The applicant may withdraw the application for agreement at any time before the finalisation of the terms of the agreement.

(2) The application for withdrawal shall be in Form No. 3CEE.

(3) The fee paid shall not be refunded on withdrawal of application by the applicant.

Rule – 10K

Preliminary processing of application.

10K. (1) Every application filed in Form No. 3CED shall be complete in all respects and accompanied by requisite documents.

(2) If any defect is noticed in the application in Form No. 3CED or if any relevant document is not attached thereto or the application is not in accordance with understanding reached in ¹²[any] pre-filing consultation referred to in rule 10H, the Director General of Income-tax (International Taxation) (for unilateral agreement) and competent authority in India (for bilateral or multilateral agreement) shall serve a deficiency letter on the applicant before the expiry of one month from the date of receipt of the application.

(3) The applicant shall remove the deficiency or modify the application within a period of fifteen days from the date of service of the deficiency letter or within such further period which, on an application made in this behalf, may be extended, so however, that the total period of removal of deficiency or modification does not exceed thirty days.

(4) The Director General of Income-tax (International Taxation) or the competent authority in India, as the case may be, on being satisfied, may pass an order providing that application shall not be allowed to be proceeded with if the application is defective and defect is not removed by applicant in accordance with sub-rule (3).

(5) No order under sub-rule (4) shall be passed without providing an opportunity of being heard to the applicant and if an application is not allowed to be proceeded with, the fee paid by the applicant shall be refunded.

Rule – 10L

Procedure.

10L. (1) If the application referred to in rule 10K has been allowed to be proceeded with, the team or the competent authority in India or his representative shall process the same in consultation and discussion with the applicant in accordance with provisions of this rule.

(2) For the purpose of sub-rule (1), it shall be competent for the team or the competent authority in India or its representative to—

(i) hold meetings with the applicant on such time and date as it deem fit;

(ii) call for additional document or information or material from the applicant;

(iii) visit the applicant’s business premises; or

(iv) make such inquiries as it deems fit in the circumstances of the case.

(3) For the purpose of sub-rule (1), the applicant may, if he considers it necessary, provide further document and information for consideration of the team or the competent authority in India or his representative.

(4) For bilateral or multilateral agreement, the competent authority shall forward the application to Director General of Income-tax (International Taxation) who shall assign it to one of the teams.

(5) The team, to whom the application has been assigned under sub-rule (4), shall carry out the enquiry and prepare a draft report which shall be forwarded by the Director General of Income-tax (International Taxation) to the competent authority in India.

(6) If the applicant makes a request for bilateral or multilateral agreement in its application, the competent authority in India shall in addition to the procedure provided in this rule invoke the procedure provided in rule 44GA.

(7) The Director General of Income-tax (International Taxation) (for unilateral agreement) or the competent authority in India (for bilateral or multilateral agreement) and the applicant shall prepare a proposed mutually agreed draft agreement enumerating the result of the process referred to in sub-rule (1) including the effect of the arrangement referred to in sub-rule (5) of rule 44GA which has been accepted by the applicant in accordance with sub-rule (8) of the said rule.

(8) The agreement shall be entered into by the Board with the applicant after its approval by the Central Government.

(9) Once an agreement has been entered into the Director General of Income-tax (International Taxation) or the competent authority in India, as the case may be, shall cause a copy of the agreement to be sent to the Commissioner of Income-tax having jurisdiction over the assessee.

Rule – 10M

Terms of the agreement.

10M. (1) An agreement may among other things, include—

(i) the international transactions covered by the agreement;

(ii) the agreed transfer pricing methodology, if any;

(iii) determination of arm’s length price, if any;

(iv) definition of any relevant term to be used in item (ii) or (iii);

(v) critical assumptions;

13[(va) rollback provision referred to in rule 10MA;]

(vi) the conditions if any other than provided in the Act or these rules.

(2) The agreement shall not be binding on the Board or the assessee if there is a change in any of critical assumptions or failure to meet conditions subject to which the agreement has been entered into.

(3) The binding effect of agreement shall cease only if any party has given due notice of the concerned other party or parties.

(4) In case there is a change in any of the critical assumptions or failure to meet the conditions subject to which the agreement has been entered into, the agreement can be revised or cancelled, as the case may be.

(5) The assessee which has entered into an agreement shall give a notice in writing of such change in any of the critical assumptions or failure to meet conditions to the Director General of Income-tax (International Taxation) as soon as it is practicable to do so.

(6) The Board shall give a notice in writing of such change in critical assumptions or failure to meet conditions to the assessee, as soon as it comes to the knowledge of the Board.

(7) The revision or the cancellation of the agreement shall be in accordance with rules 10Q and 10R respectively.

Rule – 10MA

¹³[Roll Back of the Agreement.

10MA. (1) Subject to the provisions of this rule, the agreement may provide for determining the arm’s length price or specify the manner in which arm’s length price shall be determined in relation to the international transaction entered into by the person during the rollback year (hereinafter referred to as “rollback provision”).

(2) The agreement shall contain rollback provision in respect of an international transaction subject to the following, namely:—

(i) the international transaction is same as the international transaction to which the agreement (other than the rollback provision) applies;

(ii) the return of income for the relevant rollback year has been or is furnished by the applicant before the due date specified in Explanation 2 to sub-section (1) of section 139;

(iii) the report in respect of the international transaction had been furnished in accordance with section 92E;

(iv) the applicability of rollback provision, in respect of an international transaction, has been requested by the applicant for all the rollback years in which the said international transaction has been undertaken by the applicant; and

(v) the applicant has made an application seeking rollback in Form 3CEDA in accordance with sub-rule (5).

(3) Notwithstanding anything contained in sub-rule (2), rollback provision shall not be provided in respect of an international transaction for a rollback year, if,—

(i) the determination of arm’s length price of the said international transaction for the said year has been subject matter of an appeal before the Appellate Tribunal and the Appellate Tribunal has passed an order disposing of such appeal at any time before signing of the agreement; or

(ii) the application of rollback provision has the effect of reducing the total income or increasing the loss, as the case may be, of the applicant as declared in the return of income of the said year.

(4) Where the rollback provision specifies the manner in which arm’s length price shall be determined in relation to an international transaction undertaken in any rollback year then such manner shall be the same as the manner which has been agreed to be provided for determination of arm’s length price of the same international transaction to be undertaken in any previous year to which the agreement applies, not being a rollback year.

(5) The applicant may, if he desires to enter into an agreement with rollback provision, furnish along with the application, the request for the same in Form No. 3CEDA with proof of payment of an additional fee of five lakh rupees:

¹⁴[Provided that in a case where an application has been filed on or before the 31st day of March, 2015, Form No. 3CEDA along with proof of payment of additional fee may be filed at any time on or before the 30th day of June, 2015 or the date of entering into the agreement whichever is earlier:

Provided further that in a case where an agreement has been entered into on or before the 31st day of March, 2015, Form No. 3CEDA along with proof of payment of additional fee may be filed at any time on or before the 30th day of June, 2015 and, notwithstanding anything contained in rule 10Q, the agreement may be revised to provide for rollback provision in the said agreement in accordance with this rule.]]

Notes:

¹³ Inserted by the IT (Third Amdt.) Rules, 2015, w.e.f. 14-3-2015.

¹⁴ Substituted by IT (Fourth Amdt.) Rules, 2015, w.e.f. 1-4-2015