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Transfer pricing law in India applies to both domestic and international transactions which fall above a threshold in terms of deal value. Transfer Pricing was introduced through inserting Section(s) 92A-F and relevant Rule(s) 10A-E of the Income Tax Rules 1962.
It ensures that the transaction between ‘related’ parties is at a price that would be comparable if the transaction was occurring between unrelated parties.
The following sections of the Income Tax Act, 1961 apply to international transactions in terms of transfer pricing.
Section 92 of the Income Tax Act, 1961 – Computation of income from international transactions having regard to arm’s length price.
This section states that any international or specified domestic transaction between associated enterprises which has been mutually agreed and undertaken for the purpose of allocation or apportionment of any cost or expense incurred or to be incurred for a benefit, service or facility undertaken or to be undertaken by one or more of the enterprises, then the cost or expense allocated, must be contributed having regard to the arm’s length price of such benefit, service or facility.
Section 92B of the Income Tax Act, 1961 – Meaning of international transaction
This section defines international transaction(s) for the purpose of this Section and the Section(s) 92, 92C, 92D and 92E as a transaction between two or more associated enterprises, wherein either one or both the enterprises are non-residents.
The nature of transactions between the enterprises shall be recorded through a mutual agreement or arrangement. It can be a purchase, sale or lease of tangible or intangible assets, provision of services, borrowing or lending of money or any other transaction which has some effect on the profit or income or loss or assets of the enterprises and the enterprises have mutually agreed to apportion cost or expense incurred in the process of such transactions.
Section 92A of the Income Tax Act, 1961 – Meaning of Associated Enterprises
For the purpose of Sections 92, 2B, 92C, 92D, 92E, and 92F the term associated enterprises in relation to another enterprise shall mean, an enterprise-
For the purpose of sub-section (1), two enterprises will be deemed to be associated enterprises if any time during the previous year at any time-
A report from an accountant has to be furnished by persons who are entering into an international transaction or a specified domestic transaction. A report from an accountant in a prescribed form, duly signed and verified by the accountant must be obtained before the specified date by any person entering into an international transaction or specified domestic transaction in the previous year. The audit is applicable to both international and specified domestic transactions. Form 3CEB must be filed.
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