Transfer Pricing guide: India
Read below for more detailed information on transfer pricing regulations, document requirements, and other considerations for India, as well as recent industry hot topics and key developments in the country's business landscape.
Page updated 1st July 2026
Transfer Pricing regulations
Is the jurisdiction part of OECD/G20 Inclusive Framework on BEPS?
Yes.
Relevant Transfer Pricing regulation
Chapter X of the Income Tax Act, 2025 read with the Income Tax Rules, 2026 (applicable from Tax Year 2026–27). Prior to Tax Year 2026–27, the income tax provisions were governed by Chapter X of the Income-tax Act, 1961, which has been replaced by the Income Tax Act, 2025 with effect from Tax Year 2026–27.
Is this regulation aligned with the OECD Guidelines
Indian transfer pricing rules are largely aligned with OECD Guidelines. OECD guidelines are often relied by the Income Tax Department. In cases of conflict, Indian provisions take precedence over OECD guidance.
Transfer Pricing documentation requirements
Documentation Threshold for Preparation of Local File/ TP Documentation
Taxpayers are required to maintain contemporaneous local documentation for international transactions if the aggregate value of such transactions during the tax year exceeds INR 10 million. Similarly, documentation is mandatory for Specified Domestic Transactions (SDTs) if their aggregate value exceeds INR 200 million.
However, irrespective of these thresholds, taxpayers must maintain basic documents and information to substantiate the arm’s length price of transactions with related parties in all cases.
Documentation Threshold for Preparation of Master File
Master File requirements apply to every taxpayer being a constituent entity of an international group if the following two conditions are satisfied:
Condition A. The consolidated revenue as reflected in the consolidated financial statement of the international group for the accounting year exceeds INR 5 billion.
Condition B. Either of the below transactional thresholds is achieved for the accounting year:
- The aggregate value of international transactions as per the books of accounts maintained by the taxpayer exceeds INR 500 million
- The purchase, sale, transfer, lease or use of IP as per the books of accounts maintained by the taxpayer exceeds INR 100 million
Documentation Threshold for Preparation of Country by Country Report
Consolidated group revenue for the preceding accounting year exceeds INR 64 billion.
Submission of Local File, Master File, and CbC Report Required? If so, when?
'(1) Local file:
Needs to be submitted Within 30 days of request raised by the Officer of the Income Tax Department.
(2) Master File:
Master File in Form 56 should be filed on or before the due date of filing of income tax return in India. (For tax year 2026-27, the due date of filing income tax return in India is 30th November 2027)
(3)CBC Report:
CbCR in Form 59 should be filed within 12 months from the end of the reporting accounting year. Reporting accounting year is the accounting year followed by the parent entity.
*There are other intimations which may be required to be filed depending upon the facts of the case.
If No Submission Required, any Other Deadline?
N/A
Other Documentation Requirements
None.
Does TP documentation / Local file Need to be Prepared Contemporaneously with Tax Return Filing (i.e., before filing the return)?
Indian local file/TP documentation must be maintained contemporaneously but does not need to be submitted along with the tax return. The local file/TP documentation must be prepared on or before filing of TP return i.e. Form 48 for the year (For tax year 2026-27, the due date of filing TP return is 31st October 2027)
The Local file/TP documentation must be furnished before the Income tax Department on request during assessment.
Form 48 serves as a formal disclosure of transfer pricing compliance . In this form, the Accountant certifies that proper information and documents have been maintained by the Assessee in respect of the transactions.
Transfer Pricing Specific Returns
Preparation of TP Return Required?
Yes, TP return in Form 48 should be filed by taxpayers with tax authorities in electronic form. It is to be certified from a Chartered Accountant.
Deadline for TP Return Filing
TP Return in Form 48 is required to be filed on or before one month from the due date of filing tax return in India. For tax year 2026-27, the due date for filing tax return is 30th November 2027 (for corporates on which transfer pricing provisions are applicable).
Accordingly, the due date of filing TP Return for tax year 2026-27 is 31st October 2027.
Key information to be included in the TP Return
Key information to be included in the TP return:
- Basic information of the Assessee (name, PAN, address, etc.)
- Basic information of the AEs (name, unique Identifier, address, relationship, etc.)
- Transaction-wise schedules with details for international transactions, deemed international transactions, and SDTs (Related party details, nature of the transaction, amount of the transaction (as per books and ALP), amount of adjustment, details of inter-company agreements and APA corresponding to such transactions, etc.)
- Details of determination of ALP, including details of aggregated transaction, details of the most appropriate method, no. of comparables selected, arm's length margin/price, etc.
- Details of the Accountant certifying the form
Benchmarking - Local Tax Authority Preferences
Local vs Regional Comparables Set
Indian tax authorities generally prefer the use of local (Indian) comparable companies over regional or global comparables for transfer pricing analyses. This preference is based on the rationale that companies operating in different geographies may not provide a reliable benchmark due to variations in industry growth trajectories, market conditions, cost structures, and levels of competition. As a result, the use of regional comparables often requires a strong justification, and taxpayers may face challenges in defending such selections unless supported by robust economic analysis and appropriate adjustments.
Single-Year vs Multi-Year Analysis
As per prevalent law in India, single year results for the tested party are compared with weighted average data of comparable for 3 years.
Public vs Private Comparables
Accepts both public and private comparables
Interquartile Range or Full Range
Where there is a minimum of six comparable, the 35th percentile to the 65th percentile is applied. In other cases, the arithmetic mean is applicable along with some tolerance range prescribed annually.
Transaction-Based or Aggregate Approach, or Both
Both.
How Often are Benchmarking Sets Renewed (financial update versus full scope BMS preparation)
Indian law requires benchmarking study to be conducted on annual basis and it forms part of local file/TP documentation. However, taxpayer has an option of 'block transfer pricing assessment'.
TP Penalties
In Case of Delayed Submission of Documentation
1) Penalty for failure to furnish information or documentation: 2% of the value of international transactions or SDTs
2) If any person in respect of an international transaction or SDT:
- fails to keep and maintain any such information and document
- fails to report such transaction
- maintains or furnishes an incorrect information or document
They shall be liable to pay a penalty of 2% of the value of international transactions or SDTs
3) Penalty for failure to furnish accountant's report in form 48: INR 50,000 to INR 100,000
In case of Income Adjustments in Course of a Tax audit
1) Primary adjustment would be made i.e. adjustment would be made to taxable income to arrive at the Arm's Length Price. This may result into increasing the taxable income, thereby resulting into a tax demand.
Further, the Indian company is required to repatriate the excess money from AE. If such money is not repatriated to India within the prescribed time, it is treated as an advance to AE, and interest may apply (also known as 'secondary adjustment' in India). Else, Indian company may opt to pay an additional income tax @ 18% on excess money.
2) Penalty of 50% of tax payable on the transfer pricing adjustment (under-reported income) if documentation has not been maintained (No penalty if TP documentation is properly maintained, transactions are duly declared, and all material facts are fully disclosed)
3) Penalty of 200% of tax payable on the transfer pricing adjustment (misreported income) if the adjustment arises due to failure to report an international transaction.
Other Considerations
APA & MAP Availability
There are provisions in the Income tax Act which provide for entering into an Advance Pricing Agreement (unilateral, bilateral or multilateral). The Income tax law contains provisions in relation to MAP process as well.
Applicability of Safe Harbour Rules
Safe harbour rules in Transfer Pricing in India are provisions introduced by the Indian tax authorities to reduce litigation and provide certainty to taxpayers. These rules allow eligible taxpayers to follow a prescribed margin or price for certain international transactions with associated enterprises, and if they do so, the tax authorities will not challenge the pricing. They are applicable for certain type of transactions such as Software development services, IT-enabled services (ITES), Knowledge process outsourcing (KPO) etc.
Applicability of Safe Harbour Rules is notified by the CBDT on annual basis. The CBDT has issued notification on applicability of Safe harbour Rules till tax year 2025-26.
Critical Transfer Pricing Issues Prevailing in the Jurisdiction, if any
Arm's length analysis of intra group management support services and outstanding receivables are some of the issues prevalent these days.
Criteria/ Guidelines for Transfer Pricing Audit/ Assessments by Tax Authority
India has earned a reputation for one of the most stringent and assertive Transfer Pricing audit environments globally. This stems from the government's commitment to curb base erosion and profit shifting (BEPS) and to ensure that intercompany cross-border transactions reflect arm’s length pricing.
India employs a risk-based approach for TP scrutiny through systems like Computer Aided Scrutiny Selection (CASS) and internal
CBDT guidelines which identify high-risk taxpayers or transactions for mandatory scrutiny.
Relevant Regulations and Rulings with Respect to Thin Capitalization or Debt Capacity in the Jurisdiction
There are specific provisions in the Indian Income tax Act for thin capitalisation. The provisions limits the deductibility of interest paid by an Indian company or PE of a foreign company to associated enterprises, to 30% of EBITDA, if such interest exceeds INR 1 crore.
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Introduction of new Income Tax Act
One of the most significant recent developments in the Indian tax and Transfer Pricing landscape is the introduction of the new Income-tax Act, (Income Tax Act, 2025) which marks a major step towards simplifying and modernizing India’s direct tax framework. While the new legislation primarily aims to streamline and rationalize the existing provisions, it also has notable implications for the Transfer Pricing regime. The revised framework is expected to bring greater clarity to the interpretation of international transaction provisions, compliance requirements, and documentation obligations, thereby helping reduce ambiguity and prolonged litigation.
Introduction of Block Assessment
A new three-year block TP assessment mechanism has been introduced as a part of the New Income Tax Act. This framework is designed to reduce repetitive TP audits in situations where the nature of international transactions and business conditions remain broadly consistent over time. Under this scheme, the arm’s length price would be determined for two consecutive tax year along with the base year for which TP reference is made subject to the taxpayer opting in and the TPO validating that the necessary conditions are satisfied.
Introduction of safe harbour
The Income Tax Act,2025 has introduced significant enhancements to the Safe Harbour Rules. Multiple technology service segments have been consolidated into a single“Information Technology Services” category with a uniform 15.5% margin. The eligibility threshold has been increased from Rs. 300 crore to Rs. 2000 crore. The amendments also introduce a more system-driven and automated framework, reducing the need for detailed scrutiny and administrative interface.
Intra group management support services
MNCs having global presence prefer centralisation of services. Generally, the support functions of the group being, HR, legal, finance, corporate functions, environmental functions, strategic decisions etc. are performed by the parent entity for a consideration. The consideration is generally based on ‘cost plus arm's length profit markup’ pricing policy.
In addition to the benchmarking of pricing, Indian tax authorities lay focus on establishing the 'need' test and 'benefit' test of such intra group services. Corporates should maintain robust documentation to substantiate the need of intra group services, benefit derived therefrom along with proof of receipt of such services.
India follows a compliance driven approach for transfer pricing cases with a strong focus on documentation and benchmarking, being conducted in accordance with the Indian Income Tax Act and rules and OECD principles. The key focus areas involve thorough review of the FAR analysis conducted by the taxpayer for itself and its AEs, selection of comparable, selection of method, economic adjustments made to arrive at Arm’s Length Price etc.
In fact, there is a Transfer Pricing Officer (TPO) entrusted with the responsibility to examine transfer pricing matters, reflecting the seriousness with which TP issues are handled.
India employs a risk management strategy (RMS) system for selection of cases for TP scrutiny. The CBDT issue guidelines laying down the basis of selection of cases for scrutiny. The cases are selected generally based on the quantum of international transactions, history of TP adjustments, industry or sector focus, nature of transactions, risk-based selection criterion (like consistent losses, significant payment of royalties, management fees, use of foreign comparable) etc.
The Audit Process involves:
Reference to TPO: The Assessing Officer (AO) may refer a case to the TPO.
Notices & Information Requests: The taxpayer receives notices asking for detailed TP documentation and other data.
Benchmarking Scrutiny: TPO reviews the methods used, comparable selected, and financials disclosed.
Adjustments: If the TPO disagrees with the Arm’s Length Price , a TP adjustment is proposed.
Order and Appeal: Once the TPO passes a final order, the AO issues a revised assessment. Taxpayers have the right to appeal either to the Dispute Resolution Panel (DRP)—a fast-track forum for eligible cases—or the Commissioner of Income Tax (Appeals).
APA - The Advance Pricing Agreement (APA) programme of the CBDT, is one of its leading programmes for fostering a tax regime in India that provides an investor conducive environment.
India offers both Unilateral and Bilateral APAs to provide certainty and avoid TP litigation. The APA program has matured significantly - the total number of APAs since the inception of the APA programme has crossed the 1000 th mark, aggregating to 1034 APAs, comprising 750 Unilateral APAs and 284 Bilateral APAs.
It covers complex transactions including intangibles, services, and financial transactions.
MAP – The MAP process in India is designed as a non-adversarial dispute resolution mechanism to address international tax disputes arising from double taxation or inconsistent tax treatment (like corresponding adjustments).
The 2020 guidance ensures that the process is efficient, transparent, and in line with international best practices, particularly those recommended under the OECD's BEPS Action Plan.
Alignment with OECD Guidelines
India’s transfer pricing regulations are broadly aligned with the OECD Transfer Pricing Guidelines, particularly in terms of foundational principles. The Indian TP regime adopts the arm’s length principle as its core standard, consistent with Article 9 of the OECD Model Tax Convention.
India also recognises the five traditional TP methods recommended by the OECD—CUP, RPM, CPM, TNMM, and the Profit Split Method—along with an allowance for "any other method" that adheres to the arm’s length standard. The documentation framework introduced in India, particularly with the introduction of the three-tiered documentation structure—Local File, Master File, and Country-by-Country Report (CbCR)—closely mirrors the BEPS Action 13 framework prescribed by the OECD.
India has actively implemented various OECD BEPS Action Plans, including those relating to documentation (Action 13), aligning TP outcomes with value creation (Actions 8–10), and the Multilateral Instrument (Action 15). Further, concepts like functional analysis, risk-return allocation, and the use of comparables follow the OECD’s analytical framework.
Benchmarking Analyses Nuances or Preferences
Indian tax authorities prefer local (Indian) comparable companies over regional or global comparable. Use of foreign comparable is accepted, unless Indian comparable are unavailable/ unreliable or a compelling economic rationale is documented.
The Comparable Uncontrolled Price (CUP) method is preferred where reliable data exists, especially for:
- Intercompany loans (benchmarking using LIBOR + arm’s length spread or local interest rates)
- Royalties (royalty rate databases like RoyaltyStat, KTMine, etc.)
- Intra-group services (benchmarking against third-party vendor arrangements)
Authorities may reject aggregation of dissimilar transactions. They prefer segmented financials and transaction-by-transaction benchmarking where possible, particularly when the nature or risk profile differs.
Persistent loss-making companies (losses for 3 consecutive years) are typically excluded from the comparable set. However, occasional loss-makers may be retained by the tax authority.
Comparable are filtered using RPT thresholds: Often set at 25% of total revenue. High RPT comparable are rejected to ensure arm's length purity
Thin Capitalisation Considerations for Intercompany Loans
The Government of India, through Finance Act, 2017, introduced anti-abuse provisions in the Indian tax laws that provides for limitation on interest deduction in certain cases, which is broadly in line with the recommendations as per BEPS Action 4 Report.
The Income-tax Act limits interest deductibility to 30% of EBITDA for Indian entities where interest is paid to non-resident associated enterprises.
This applies if total interest exceeds INR 1 crore and is relevant particularly for debt-heavy structures.
Transfer Pricing Primary Risk Areas in Jurisdiction
Intra group management support services
MNCs having global presence prefer centralisation of services. Generally, the support functions of the group being, HR, legal, finance, corporate functions, environmental functions, strategic decisions etc. are performed by the parent entity for a consideration. The consideration is generally based on ‘cost plus arm's length profit markup’ pricing policy.
In addition to the benchmarking of pricing, Indian tax authorities lay focus on establishing the 'need' test and 'benefit' test of such intra group services. Corporates should maintain robust documentation to substantiate the need of intra group services, benefit derived therefrom alongwith proof of receipt of such services.
Outstanding Receivables
The issue revolves around whether delayed payments from Associated Enterprises constitute a separate international transaction warranting a notional interest adjustment.
Indian jurisprudence indicates that notional interest adjustments on outstanding receivables are generally unwarranted when the taxpayer has made appropriate working capital adjustments under TNMM or the receivables are realized within a reasonable credit period. However, in cases where receivables remain unpaid beyond the agreed credit period without justification, tax authorities may consider imputing notional interest, treating the delay as a separate international transaction.
Marketing Intangibles
The issue arises when Indian entities incur significant AMP expenses while promoting brands that are legally owned by their foreign Associated Enterprises (AEs). Tax authorities often view such expenses as a form of service provided to the AE, potentially requiring compensation at arm’s length.
However, this view is not uniformly accepted. There are differing interpretations on whether AMP expenses should be evaluated separately or as part of the overall distribution function.
