India Transfer Pricing Policy

India has run a transfer pricing regime for over two decades and it is one of the most heavily litigated in the world. The volume matters more than any single rule: because so many positions have been tested through the Dispute Resolution Panel, the Tribunal and the courts, the Indian question is often not "what does the statute say" but "what has been held about this fact pattern".

The statutory architecture is distinctive in two respects. First, the arm’s-length price determination can be referred to a dedicated Transfer Pricing Officer rather than staying with the assessing officer, so the analysis is examined by a specialist. Second, an accountant’s report on the international transactions is filed with the return each year, which means the taxpayer certifies the transactions before any question is raised.

India also brings specified domestic transactions within the same machinery in defined cases, so the regime is not exclusively about cross-border flows. For an inbound group the practical effect is that the Indian subsidiary is inside a documentation and certification cycle every single year, independent of materiality thresholds elsewhere in the group.

The statutory position

• Section 92C of the Income-tax Act governs the computation of the arm’s length price. It names the methods available and requires the taxpayer to apply "the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe".
• The methods section 92C(1) names are the comparable uncontrolled price method, the resale price method, the cost plus method, the profit split method, the transactional net margin method, and such other method as may be prescribed by the Board.
• Section 92E requires a report from an accountant in respect of international transactions, furnished in Form 3CEB (prescribed by rule 10E).
• Section 92CA provides for reference of the arm’s-length price determination to a Transfer Pricing Officer; section 92CC provides for advance pricing agreements; section 92CE deals with secondary adjustment.
• Rule 10CA prescribes the manner of computing the arm’s length price where the most appropriate method produces more than one price, for transactions undertaken on or after 1 April 2014.

Those references were read in the primary source — incometaxindia.gov.in — on 2026-08-19, and they are quoted because they were read. Legislation is amended and guidance is reissued, so confirm the current text before relying on any of it for a filing position.

The annual accountant’s report under section 92E, furnished in Form 3CEB, is the fixed point of the Indian year. The accountant examines the books and records relating to the international transactions and specified domestic transactions entered into during the previous year and gives an opinion on whether the prescribed information and documents have been maintained — so the documentation must exist before the report can be signed, not after.

Documentation itself follows the three-tier shape: a master file for the group, the Indian local documentation, and country-by-country reporting for groups above the reporting threshold. The three-tier structure was introduced in line with BEPS Action 13, and the specific Indian filing forms and due dates attach to each tier separately.

Where the most appropriate method produces more than one price, rule 10CA prescribes how the arm’s-length price is computed for transactions undertaken on or after 1 April 2014 — the range mechanism. A file that determines a set of prices and then does not show the computation under rule 10CA has left the last step of the statutory test undone.

The three-tier documentation shape

The documentation shape is close to universal because BEPS Action 13 designed it that way. A master file sets out the group — structure, intangibles, financing, how it makes its money. A local file covers this entity’s own controlled transactions and the reasoning behind each price. A country-by-country report shows administrations, jurisdiction by jurisdiction, where the revenue, the profit, the tax and the people sit. The OECD’s agreed threshold for the country-by-country report is EUR 750 million of consolidated group revenue, or a near equivalent amount in domestic currency as of January 2015 (OECD, Action 13 country-by-country reporting (oecd.org)) — the domestic-currency figure each jurisdiction legislated is its own, and is not stated here because it was not read here.

What we confirm before an India file is signed off

• Which tiers of documentation are genuinely due for the period in front of us, checked against what Income Tax Department requires now — not against what it required when the last file was written.
• Whether every intercompany flow has been characterised — the recharge, the guarantee, the seconded employee and the loan are the ones routinely missing from the transaction list.
• That the paperwork tells one story — agreements, invoices, management accounts and the policy the file sets out, all saying the same thing about the same year.
• That the local narrative is consistent with what the group has already reported for India anywhere else, because the authority sees both.

Section 92C(1) names six routes, including a residual "such other method as may be prescribed by the Board", and section 92C requires the most appropriate of them given the transaction, the parties and the functions performed. There is no default: the file has to reason its way to the method, and in practice the reasoning is examined as closely as the result. Marketing intangibles, intra-group services and captive software and back-office operations are the fact patterns where the method choice is most often contested.

The five methods in the OECD framework

Comparable uncontrolled price (CUP)

Prices the controlled transaction directly against a comparable transaction between independent parties. The most persuasive method where a genuine comparable exists, and the hardest to satisfy — small differences in product, volume, market or contractual term break comparability, so it is strongest on commodities, listed instruments and licences with published rates.

Resale price

Derives the transfer price by subtracting an arm’s-length gross margin from the resale price charged to an independent customer. Appropriate where the reseller does not transform the product, and unreliable where the comparison set performs a different mix of marketing, warranty or inventory functions.

Cost plus

Adds an arm’s-length mark-up to the costs the related supplier incurred. The natural fit for contract manufacturing and routine services, and the disputes are almost all about the cost base rather than the percentage — what was included, what was pushed below the line, and whether the accounting stayed the same.

Transactional net margin (TNMM)

Compares a net profit indicator — operating margin, return on costs, return on assets — against independent companies performing similar functions. The workhorse of most documentation because it tolerates product differences, and the method most exposed to a weak comparable set, since the search criteria decide the answer.

Profit split

Allocates the combined profit according to what each party contributed. It is the method for genuinely two-sided situations: both parties bringing something unique and valuable, operations too integrated to price one side in isolation, or risk that both parties genuinely share.

The method matters less than the reasoning behind it. A India file that shows which methods were considered, what data was available for each and why one was preferred is defending a decision; one that names a single method is defending an assumption.

We build an India file the way an examiner reads one: functional analysis first, method second, benchmark third. A file assembled in the other order tends to have a conclusion in search of a rationale, and it shows.

What an India engagement covers

• Transaction mapping and delineation. Every related-party flow into and out of the India entity, characterised and reconciled to the ledger, before any analysis begins.
• Functions, assets and risks. What the India operation really does, who takes the decisions, and which risks it can actually control. Everything downstream depends on getting this right, and it is the part most files compress.
• Method selection, reasoned on the record. The method chosen for each tested transaction, with the alternatives considered and the reason each was set aside.
• Benchmarking you can audit. The search criteria, every screening decision and every comparability adjustment set out in full, so a reviewer reproduces the result rather than building their own.
• Documentation to Income Tax Department’s expected shape, consistent with the group’s master file and with what has been reported for India elsewhere.
• Sourcing, stated. Each threshold, deadline and rate in the finished file is checked against the Income Tax Department (Central Board of Direct Taxes) for the relevant period. Where we cannot confirm a figure, the file explains the mechanism and gives no number.

Advance certainty and dispute resolution

India offers advance pricing agreements under section 92CC, which have become the main route for groups that want certainty on a recurring transaction rather than an annual argument about it, and the mutual agreement procedure under its treaties for double taxation that has already arisen. Section 92CE’s secondary adjustment machinery means the consequences of a primary adjustment do not necessarily stop at the primary adjustment, which is a reason to model the full effect before conceding one.

How we work

The fee is agreed in writing before any work starts, and you review the result before anything is filed. Where your India entity sits relative to our offices makes no difference to how the file gets built. If you want to talk it through first, the helpline answers 24 hours a day and there is no obligation attached to a call — contact us or read our transfer pricing service page for what a full engagement includes.

The direction of travel in India is the same as everywhere else, and it is worth naming plainly. Authorities exchange country-by-country data, so a group's own reported allocation of profit arrives before any question is asked. Financing and intangibles now generate most adjustments. And a file produced late is treated differently from a file produced on time, whatever it contains.

Where challenges concentrate in India

• The captive services fact pattern — an Indian entity performing software development, engineering or back-office work for a foreign parent on a cost-plus basis — remains the most litigated in the country. The arguments are about comparable selection, working-capital and risk adjustments, and whether the Indian entity is really as low-risk as the contract says.
• Marketing and brand-building spend by an Indian distributor for a foreign-owned brand is a recurring dispute. Where the Indian entity funds market development, the question is whether it should be compensated for building an intangible it does not own, and the answer turns on facts recorded at the time.
• Because the volume of decided cases is so large, a position that has been rejected on similar facts is a known risk rather than an open question. Reading the file against the decided fact patterns before filing is cheaper than discovering the match during assessment.

What it costs when the file is not there

When an India position fails, it usually fails in more than one place at once: an adjustment here, no corresponding relief there, and a documentation consequence that attaches whether or not the pricing is eventually agreed. The exposure is not the tax on the adjustment — it is the whole chain.

By business size

Owner-managed group

A single Indian company with one foreign affiliate is inside the annual accountant’s-report cycle. Small does not mean exempt, and the first year is where the policy gets set for every year after.

Mid-market group

Multiple intercompany flows mean multiple tested transactions, each with its own method under section 92C. Consolidating them into one analysis is the mistake that makes a file indefensible.

Multinational group

Master file, local documentation and country-by-country reporting all engage, and an advance pricing agreement becomes worth pricing against the cost of the annual dispute it replaces.

By industry

Technology and global capability centres

Cost-plus captives, seconded staff and cross-charged platform costs sit in one entity, and each needs its own arm’s-length basis and its own comparable set.

Pharmaceuticals and life sciences

Contract research, contract manufacturing and licensed product rights often run through the same Indian company, and the file has to keep them as separate tested transactions.

Consumer and retail distribution

Imported goods priced by a related supplier plus locally funded brand spend is the classic Indian marketing-intangible dispute in miniature.

None of these is a template. Two companies in the same sector with the same India turnover can need entirely different files, because the transfer pricing question follows the group structure and the intercompany agreements rather than the industry. The sector tells you where to look first; the agreements tell you what the answer is.