Transfer Pricing in India: Rules, Documentation & Compliance for 2025
What is Transfer Pricing?
Transfer pricing refers to the prices set for transactions between related parties (associated enterprises) across different tax jurisdictions. In India, transfer pricing rules under Sections 92 to 92F of the Income Tax Act, 1961 require such transactions to be conducted at an Arm's Length Price (ALP) — the price that would be charged between unrelated parties in similar circumstances.
Who Does Transfer Pricing Apply To?
- Indian companies transacting with foreign associated enterprises (subsidiaries, parents, group companies)
- Foreign companies with a Permanent Establishment (PE) in India
- Specified Domestic Transactions (SDT): Between related Indian parties where aggregate value exceeds ₹20 crore
Mandatory Accountant's Report: Form 3CEB
If aggregate international transactions exceed ₹1 crore or specified domestic transactions exceed ₹20 crore, a Form 3CEB (Accountant's Report) signed by a Chartered Accountant must be filed with the income tax return by 30 November.
The Six Transfer Pricing Methods
- Comparable Uncontrolled Price (CUP) — Most direct; compares prices in controlled vs. uncontrolled transactions. Preferred for commodities, royalties, and interest.
- Resale Price Method (RPM) — Used for distributors; ALP = Resale Price minus arm's length gross margin.
- Cost Plus Method (CPM) — Suitable for manufacturers and service providers; ALP = Cost + arm's length markup.
- Profit Split Method (PSM) — Used when both parties contribute unique intangibles; profits split based on economic analysis.
- Transactional Net Margin Method (TNMM) — Most widely used in India; compares net profit margins against comparable companies.
- Any Other Method (AOM) — Residual method when none of the above can be reasonably applied.
Documentation Requirements
Contemporaneous documentation must be prepared before the return filing due date:
- Ownership structure and group overview
- Description of international transactions and associated enterprises
- Functional analysis (functions, assets, and risks of each party)
- Industry and economic analysis
- Benchmarking analysis with comparable companies
- Agreements and contracts related to the transactions
Country-by-Country Report (CbCR) and Master File
In alignment with OECD BEPS Action 13, India requires:
- CbCR: For Indian-headquartered MNEs with consolidated turnover above ₹5,500 crore — filed in Form 3CEAD
- Master File: For constituent entities of MNE groups with consolidated revenue above ₹500 crore — filed in Form 3CEAA
Penalties for Non-Compliance
| Violation | Penalty |
|---|---|
| TP adjustment by Assessing Officer | 200% of tax on adjusted amount |
| Failure to maintain documentation | 2% of the value of the international transaction |
| Failure to file Form 3CEB | ₹1 lakh |
| Failure to furnish information or documents | 2% of the transaction value |
Advance Pricing Agreement (APA)
India's APA program allows taxpayers to agree with the CBDT on the ALP methodology for future transactions (up to 5 years forward + 4 rollback years), providing certainty and reducing litigation. India has one of the world's most active APA programs.
Conclusion
Transfer pricing compliance in India requires rigorous documentation, economic benchmarking, and timely filings. Given high penalty risk and increased scrutiny, multinational enterprises operating in India should engage specialist TP advisors. Statura provides end-to-end transfer pricing compliance, from documentation to APA applications.