India

Transfer Pricing Country Profile

July 2021

SUMMARY REFERENCE

The Arm’s Length Principle

1 Does your domestic legislation or ☒ Yes S 92C of Income-tax Act, 1961

regulation make reference to the Arm’s
Length Principle? ☐ No For Income-tax Rules, 1962

Indian legislation does not directly refer to the “arm’s length principle”. However,
Indian legislation refers to determination of “arm’s length price” which is
determined on the basis of arm’s length principle.

2 What is the role of the OECD Transfer OECD Transfer Pricing Guidelines (and the UN TP Manual) are useful references
Pricing Guidelines under your domestic for carrying out transfer pricing studies by taxpayers and audits by Indian transfer
legislation? pricing officers (TPO). Indian transfer pricing law does not explicitly recognise
the direct applicability of the OECD TPG (or the UN TP Manual). However, India
has framed its own rules and guidance on transfer pricing, which are broadly in
line with the OECD TPG as well as the UN TP Manual.

3 Does your domestic legislation or ☒ Yes S 92A of Income-tax Act, 1961

regulation provide a definition of
related parties? If so, please provide the ☐ No
definition contained under your
domestic law or regulation. Indian law contains a detailed and exhaustive definition of what constitute related
parties. S 92A of the Income-tax Act 1961, defines an associated enterprise, in
relation to another enterprise, as an enterprise that participates directly or
indirectly, or through one or more intermediaries, in the management or control or
capital of the other enterprise. It also includes situations where two enterprises
have common control, capital or management through another enterprise. Besides
this, the definition envisages a number of other relationships which may result in
making two parties related parties or “associated enterprises”.

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 Transfer Pricing Methods

4 Does your domestic legislation provide ☒ Yes Rule 10B and 10AB of Income-tax Rules, 1962
for transfer pricing methods to be used
in respect of transactions between ☐ No
related parties?
If affirmative, please check those provided for in your legislation:

CUP Resale Cost TNMM Profit Other (If so,

Price Plus Split please describe)
☒ ☒ ☒ ☒ ☒ ☒

Other Method is prescribed in rule 10AB of Income-tax Rules, 1962. The “Other
Method” can be any method which takes into account the price which has been
charged or paid, or would have been charged or paid, for the same or similar
uncontrolled transaction with or between unrelated parties under similar
circumstances, considering all the relevant facts.

5 Which criterion is used in your Please check all that apply: Rule 10C of Income-tax Rules,1962
jurisdiction for the application of
transfer pricing methods? ☐ Hierarchy of methods
☒ Most appropriate method
☐ Other (if so, please explain)

India does not prescribe a hierarchy of methods. The transfer pricing method to be
used is the “Most Appropriate Method” which is arrived at after considering the
nature and class of international transaction, the FAR of the related parties that are
parties to the transaction, the availability and reliability of comparable data, the
extent to which reliable and accurate adjustments can be made to account for
differences between the international transaction between related parties and
uncontrolled comparable transactions, and the nature, extent and reliability of
assumptions required to be made in the application of a method.

6 If your domestic legislation or ☐ For controlled transactions involving commodities, the guidance contained in
regulations contain specific guidance on paragraphs 2.18-2.22 of the TPG is followed.
commodity transactions, indicate which
of the following approaches is followed. ☐ Domestic legislation mandates the use of a specific method for controlled
transactions involving commodities (if so, please explain)
☐ Other (if so, please explain)

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 India’s domestic legislation does not contain specific guidance on pricing of
commodity transactions for transfer pricing purposes.

Comparability Analysis

7 Does your jurisdiction follow (or largely ☒ Yes

follow) the guidance on comparability
analysis outlined in Chapter III of the ☐ No
TPG?
Indian Tax administration largely follows the said guidance (and the relevant
guidance under UN TP Manual) in practice.

8 Is there a preference in your ☐ Yes

jurisdiction for domestic comparables
over foreign comparables? ☒ No

India does not have an explicit preference for domestic comparables over foreign
comparables written into the law. Depending upon the selection of the tested party,
appropriate (domestic or foreign) comparables are selected.

9 Does your tax administration use secret ☐ Yes

comparables for transfer pricing
assessment purposes? ☒ No

India typically relies on publicly available data and publicly available information
in arriving at comparability data. However, India allows the transfer pricing
officers to seek third party information on financials from certain companies whose
financials may not be publicly available for a particular year. Wherever such
information is used by the Indian tax administration, the taxpayer is given an
opportunity to contest the choice of such comparables on merits.

10 Does your legislation allow or require ☒ Yes Rule 10CA of Income-tax Rules, 1962
the use of an arm’s length range and/or
statistical measure for determining ☐ No
arm’s length remuneration?
India has introduced the range concept in its transfer pricing regulations. The arm’s
length range may be used when six or more comparables are available in the
comparable dataset. Arm’s length range would be 35th to 65th percentile. Detailed
method for considering the arm’s length range has been prescribed.

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11 Are comparability adjustments ☒ Yes Rule 10B(1) (a) –(e), Rule 10B(3) Income-tax
required under your domestic Rules, 1962
legislation or regulations? ☐ No

India permits comparability adjustments. They may be carried out if such

adjustments can be made reliably and accurately to the financials of the
comparables.

Intangible Property

12 Does your domestic legislation or ☐ Yes

regulations contain guidance specific to
the pricing of controlled transactions ☒ No
involving intangibles?
India does not have specific guidance on pricing of controlled transactions
involving intangibles. Indian transfer pricing officers typically rely on generally
accepted valuation methods in this regard.

13 Does your domestic legislation or ☐ Yes HTVI Implementation Questionnaire

regulation provide for transfer pricing
rules or special measures regarding ☒ No
hard to value intangibles (HTVI)?
India does not have such rules or special measures regarding HTVI.

14 Are there any other rules outside ☐ Yes

transfer pricing rules that are relevant
for the tax treatment of transactions ☒ No
involving intangibles?

Intra-group Services

15 Does your domestic legislation or ☐ Yes

regulations provide guidance specific to
intra-group services transactions? ☒ No

India does not have specific guidance in this regard and stipulates the adoption of
the Most Appropriate Method considering all relevant facts and circumstances of
the case. Taxpayers are expected to maintain documentation evidencing the intra-
group services transaction.

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16 Do you have any simplified approach ☒ Yes Rule 10 TC(x) and rule 10TD(2A)(11) Income-
for low value-adding intra-group tax Rules, 1962
services? ☐ No

India has introduced a safe harbour rule for receipt of low-value adding intra-group
service by an Indian taxpayer from its associated enterprise. The rule stipulates
that payment of mark-up not exceeding 5% on the relevant cost incurred by such
service provider shall be covered under the safe harbour, provided that the entire
value of international transaction, including the mark-up, does not exceed a sum
of INR 100 million during the given financial year. Further, the rule mandates that
the method of cost pooling, the exclusion of shareholder costs and duplicate costs
from the cost pool and the reasonableness of the allocation keys used for allocation
of costs to the Indian taxpayer by the overseas associated enterprise shall be
certified by an accountant.

17 Are there any other rules outside ☐ Yes

transfer pricing rules that are relevant
for the tax treatment of transactions ☒ No
involving services?

Financial transactions

18 [NEW] Does your domestic legislation ☐ Yes

or regulations provide guidance specific
to financial transactions? ☒ No

India does not have any specific guidance for financial transactions, and stipulates
the adoption of the Most Appropriate Method considering all relevant facts and
circumstances of the case.

19 [NEW] Are there any other rules ☒ Yes S 94B of Income-tax Act, 1961
outside transfer pricing rules that are
relevant for the tax treatment of ☐ No
financial transactions?
In order to limit base erosion involving interest deductions, India has introduced
provisions in its domestic legislation disallowing deduction of excess interest paid
in respect of any debt issued by non-resident associated enterprise of the borrower
in certain cases. The excess interest has been defined as, “an amount of total
interest paid or payable in excess of thirty per cent of earnings before interest,
taxes, depreciation and amortisation of the borrower in the previous year or
interest paid or payable to associated enterprises for that previous year, whichever
is less.” The quantum of excess interest disallowed for deduction is allowed to be

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 carried forward for upto eight assessment years immediately succeeding the
assessment year for which the excess interest expenditure was first computed . The
minimum threshold amount of interest payment for this Section to get triggered is
INR 10 million. The detailed provisions are in S 94B of Income-tax Act, 1961.

Cost Contribution Agreements

20 Does your jurisdiction have legislation ☐ Yes

or regulations on cost contribution
agreements? ☒ No

Cost contribution arrangements are evaluated based on the facts and circumstances
of each case. Taxpayers are expected to maintain accurate records of costs to which
contribution is being made together with the justification of appropriateness of cost
allocation keys.

Transfer Pricing Documentation

21 Does your legislation or regulations ☒ Yes S 92D, S 92E and S 286 of Income-tax Act,
require the taxpayer to prepare transfer 1961
pricing documentation? ☐ No
Rules 10D, 10E, 10DA and 10DB of Income-tax
If affirmative, please check all that apply: Rules, 1962
☐ Master file consistent with Annex I to Chapter V of the TPG Form 3CEB -
☐ Local file consistent with Annex II to Chapter V of the TPG Form 3CEAA -
☐ Country-by-country report consistent with Annex III to Chapter V of the Form 3CEAB -
TPG Form 3CEAC -
☐ Specific transfer pricing returns (separate or annexed to the tax return) Form 3CEAD -
☒ Other (specify): Form 3CEAE -
In India, rule 10D of the Income-tax Rules, 1962 prescribes the list of documents
that are to be maintained as part of the Local file. Audit report relating to
international transactions and specified domestic transactions is filed in Form No.
3CEB in accordance with rule 10E of the Income-tax Rules, 1962.
The rule 10DA of the Income-tax Rules, 1962 prescribes the list of documents that
are to be maintained as part of the Master file. The relevant Forms are Form
3CEAA and Form 3CEAB.

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 The rule 10DB of the Income-tax Rules, 1962 prescribes the requirement for filing
Country-by-country report. The relevant Forms are Form 3CEAC, Form 3CEAD
and Form 3CEAE.

22 Please briefly explain the relevant Transfer pricing documentation, as stipulated in S 92D read with rule 10D (for S92D, S286 Indian Income-tax Act, 1961
requirements related to filing of local file) and rule 10DA (for master file), must be maintained and filed by every
Rule 10D, Rule 10DA, Rule 10DB Income-tax
transfer pricing documentation (i.e. taxpayer that has entered into an “international transaction” (as defined in S 92B)
Rules, 1962
timing for preparation or submission, with an associated enterprise (as defined in S 92A) and meets the monetary
languages, etc.) thresholds prescribed under the respective rules. The transfer pricing
documentation (local file and master file) is to be filed by the last date for filing
the return of income, i.e. 30th November of the year following the completed
financial year.
S 286 read with rule 10DB provides for preparation and filing of CbC report. The
CbC report is required to be filed within 12 months from the end of the reporting
accounting year.

23 Does your legislation provide for ☒ Yes S 271 AA, S 271 BA, S 271 G, S 271 GB
specific transfer pricing penalties Income-tax Act, 1961
and/or compliance incentives regarding ☐ No
transfer pricing documentation?
There is no specific incentive for compliance. Penalties for non-compliance exist.
For non-maintenance of documents under S92D (essentially local file) in relation
to international transaction(s), a penalty equal to 2% of the value of each
international transaction can be levied.
For non-maintenance of master file (where applicable), penalty of INR five
hundred thousand is imposable.
For non-furnishing of CbCR (where applicable), penalty of INR five thousand for
each day of delay (up to one month) and of INR fifteen thousand per day for delay
beyond one month, may be imposed. If the taxpayer fails to furnish the CbCR even
after penalty has been imposed by way of an order, further penalty of INR fifty
thousand per day for further delay may be imposed
Further, for inaccurate information in CbCR, taxpayer may be liable to a penalty
of INR five hundred thousand.
None of the above penalties is automatic. Before imposition of any penalty, due
statutory process has to be followed and the taxpayer has to be given an
opportunity of being heard. If there are reasonable causes which prevented a
taxpayer from complying with a provision, penalty may not be imposed.

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24 If your legislation provides for Rule 10D of Income-tax Rules sets the threshold for maintenance of transfer Rules 10D, 10DA and 10DB Income-tax Rules,
exemption from transfer pricing pricing documentation. TP documentation (broadly corresponding to local file) 1962
documentation obligations, please need not be maintained if the aggregate value, as recorded in books of account, of
S286 Income-tax Act, 1961
explain. international transactions entered into by the taxpayer does not exceed INR 1 crore.
For maintenance of master file, rule 10DA provides a dual monetary threshold.
Master file needs to be maintained in all cases where:
a) the consolidated group revenue exceeds INR 500 crore (INR 5 billion),
and;
b) the aggregate value of international transactions, as per books of account,
during an accounting year
i. exceeds INR 50 crore (INR 500 million),
or;
ii. in respect of purchase, sale, transfer, lease or use of intangible
property, such aggregate value exceeds INR 10 crore (INR 100
million)
For CbCR, the threshold has been laid down in Rule 10DB. CbCR would be
required to be filed where the group revenue is in excess of INR 5500 crores
(INR 55 billion). However, with effect from 1-4-2021, CbCR would be required
to be filed where the group revenue is in excess of INR 6400 crores
(INR 64 billion).
Also, the local filing of the CbC report by a constituent entity, resident in India, of
an International group shall be as per the provisions of Section 286(4)

Administrative Approaches to Avoiding and Resolving Disputes

25 Which mechanisms are available in Please check those that apply: S92CC, S 92CD, S 144C of Income-tax Act,
your jurisdiction to prevent and/or 1961 and Rules 10F to 10T of Income-tax Rules
resolve transfer pricing disputes? ☐ Rulings 1962 and rule 44GA in relation to Advance
☐ Enhanced engagement programs Pricing Agreements

☒ Advance Pricing Agreements (APA) Rule 44G in relation to Mutual Agreement

Procedure
☒ Unilateral APAs
S 144C of Income-tax Act 1961 in relation to
☒ Bilateral APAs Dispute Resolution Panel

☒ Multilateral APAs India’s MAP Profile

☒ Mutual Agreement Procedures

☒ Other (please specify): Dispute Resolution Panel

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 The Indian APA programme was started in FY 2012-13. The duration of an APA
can be up to five consecutive financial years. The rollback provisions were
introduced in 2014. Rollback of an APA is allowed for a period of up to four
consecutive financial years preceding the first financial year of the APA period.
For MAPs, detailed rules are laid down in rule 44G of Income-tax Rules, 1962.
India has also published a detailed MAP guidance on 7th August 2020.

Safe Harbours and Other Simplification Measures

26 Does your jurisdiction have rules on ☒ Yes S92CB of Income-tax Act, 1961
safe harbours in respect of certain
industries, types of taxpayers, or types ☐ No Rules 10TA to 10TG Income-tax Rules 1962 in
relation to Safe Harbour rules
of transactions?
Indian safe harbour rules apply for specified international transactions in relation
to specified taxpayers. For each category of specified international transaction, the
circumstances under which safe harbour shall apply are specified in detail in rule
10TD of Income-tax Rules 1962.

27 Does your jurisdiction have any other ☐ Yes

simplification measures not listed in this
questionnaire? If so, please provide a ☒ No
brief explanation.

Other Legislative Aspects or Administrative Procedures

28 Does your jurisdiction allow/require ☒ Yes

taxpayers to make year-end
adjustments? ☐ No

Taxpayers are free to make year-end adjustments to bring the value of international
transactions in line with arm’s length results. These adjustments (together with the
international transactions in relation to which they have been made) may be
examined if the case is taken up for transfer pricing audit.

29 Does your jurisdiction make secondary ☒ Yes S 92CE of Income-tax Act, 1961
adjustments?
☐ No Rule 10CB of Income-tax Rules, 1962

India has enacted legislation for secondary adjustment and the same is applicable
from FY 2016-17 onwards. The detailed provisions are specified in section 92CE
of the Income-tax Act, 1961 and rule 10CB of the Income-tax Rules, 1962.

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 Attribution of Profits to Permanent Establishments

30 [NEW] Does your jurisdiction follow ☐ Yes

the Authorised OECD Approaches for
the attribution of profits to PEs (AOA)? ☒ No
India does not follow the Authorised OECD Approaches for the attribution of
profits to PEs (AOA).

31 [NEW] Does your jurisdiction follow ☒ Yes

also another approach?
☐ No
India does not follow the Authorised OECD Approaches for the attribution of
profits to PEs (AOA). Instead, the attribution of profits to PEs is done in
accordance with rule 10 of its Income-tax Rules, 1962 read with the relevant
Double Taxation Agreement.

Other Relevant Information

32 Other legislative aspects or Indian legislation has the provision of a Dispute Resolution Panel (DRP). Any S144C of Income-tax Act 1961
administrative procedures regarding taxpayer that faces a transfer pricing adjustment has the option of approaching a 3
transfer pricing member panel of senior tax officials before the finalisation of tax demand
pertaining to the transfer pricing adjustment. The decision of DRP is binding on
the tax administration. However, the taxpayer has the right to appeal against the
decision of the DRP.

33 Other relevant information (e.g. whether All the relevant sections and rules mentioned in this profile can be accessed at the Income-tax Act
your jurisdiction is preparing new transfer websites mentioned in the “References” column.
Income-tax Rules
pricing regulations, or other relevant
aspects not addressed in this
questionnaire)

For more information, please visit: https://oe.cd/transfer-pricing-country-profiles

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