What Is Transfer Pricing? CA Murli Chandak’s Guide for Indian Businesses With International or Related-Party Transactions

In short: Transfer pricing is the rule that intra-group and related-party transactions — not just cross-border ones — must be priced as if the parties were genuinely independent of one another, at what the law calls the arm’s length price. It is not a concern reserved for large multinationals: an Indian subsidiary of a foreign parent, a startup with an overseas holding company, or an Indian company billing a foreign group entity can all be squarely within scope, regardless of size. From 1 April 2026, the governing law is the Income-tax Act, 2025 (Sections 161–173), not the familiar Sections 92–92F of the 1961 Act — and the accountant’s report itself is changing, from the long-standing Form 3CEB to a new, more granular Form No. 48. For FY 2025-26 (Assessment Year 2026-27), the old Act and Form 3CEB still apply, with the transfer pricing audit report due by 31 October 2026, a month ahead of the 30 November income tax return deadline. This guide sets out what transfer pricing actually covers, how the old and new law map onto each other, the compliance calendar you are working against right now, and where I most often see Indian businesses get it wrong.

Contents

1. 1. What Is Transfer Pricing?
2. 2. The Arm’s Length Principle
3. 3. Old Act vs New Act: Which Law Governs Your Tax Year
4. 4. When Do Transfer Pricing Rules Apply?
5. 5. Associated Enterprises and International Transactions
6. 6. Specified Domestic Transactions
7. 7. Transfer Pricing Methods
8. 8. My Eight-Step Approach to a Transfer Pricing Analysis
9. 9. Compliance Requirements: Form 3CEB, the Move to Form 48, Master File and CbCR
10. 10. Role of the Assessing Officer and the Transfer Pricing Officer
11. 11. Primary and Secondary Adjustments
12. 12. Safe Harbour Rules, Advance Pricing Agreements and Block Assessment
13. 13. Common Transfer Pricing Risks I See in Practice
14. 14. Penalties for Non-Compliance
15. 15. Interaction With GST, Customs and FEMA
16. 16. Illustrative Case Study: An Ahmedabad Startup With an Overseas Parent
17. 17. Practical Compliance Checklist
18. 18. Why Businesses Choose CA Murli Chandak for Transfer Pricing
19. 19. Related Reading
20. 20. Final Takeaway
21. 21. Frequently Asked Questions
22. Discuss Your Transfer Pricing Position

1. What Is Transfer Pricing?

Transfer pricing determines the price at which two related or associated enterprises transact with one another — a sale of goods, a service fee, a royalty, a loan, a cost allocation, or dozens of other arrangements that occur routinely within a group. Indian law requires such transactions to be priced at their arm’s length price: the price independent, unrelated parties would have agreed to under comparable commercial conditions.

A common misconception I encounter is that transfer pricing is a large-multinational problem. In practice, the rules extend to Indian subsidiaries of foreign groups, startups with an overseas holding company or investor-linked entity, Indian companies rendering services to foreign affiliates, and certain sizeable transactions between related domestic entities. Any business with cross-border group transactions, or specified related-party dealings within India, should treat transfer pricing as a core area of tax compliance rather than a peripheral one — turnover alone does not exempt you.

2. The Arm’s Length Principle

The arm’s length principle is the foundation of the entire framework. It requires that a transaction between associated enterprises be priced as though it had occurred between independent, unrelated parties operating under similar conditions.

Consider an Indian company that provides accounting support services to its overseas parent for a fee of ₹50 lakh. If comparable independent service providers typically earn a margin in the region of 15 per cent on similar costs, but the Indian company reports a margin of only 2 per cent without commercial justification, that gap is likely to attract scrutiny.

The arm’s length standard does not demand the highest or lowest conceivable price. It demands a price that can be objectively supported with reference to the functions performed by each party, the assets employed, the risks assumed, the specific terms of the transaction, prevailing market conditions, industry characteristics, and the availability of reliable comparable data. This exercise — a Functional, Asset and Risk (FAR) analysis — underpins virtually every transfer pricing determination I prepare.

3. Old Act vs New Act: Which Law Governs Your Tax Year

A significant legal transition is under way, and getting it right matters more than most businesses realise. With effect from 1 April 2026, the Income-tax Act, 2025 governs Tax Year 2026-27 onward. FY 2025-26 (Assessment Year 2026-27) — the year most businesses are currently closing and filing for — remains governed by the Income-tax Act, 1961. Applying the wrong Act’s section numbers to the wrong year is a documentation error I still see regularly. I cover the broader individual and business implications of this same 1961-to-2025 transition in Old vs New Tax Regime for Business Owners.

Income-tax Act, 1961	Income-tax Act, 2025	Subject
Section 92	Section 161	Computation of income with reference to arm’s length price
Section 92A	Section 162	Meaning of associated enterprise
Section 92B	Section 163	International transaction
Section 92BA	Section 164	Specified domestic transaction
Section 92C	Section 165	Methods for determining the arm’s length price
Section 92CA	Section 166	Reference to the Transfer Pricing Officer
Section 92CB	Section 167	Safe harbour rules
Section 92CC / 92CD	Sections 168 & 169	Advance pricing agreements and their effect
Section 92CE	Section 170	Secondary adjustment
Section 92D	Section 171	Maintenance and furnishing of information and documents
Section 92E	Section 172	Accountant’s report (Form 3CEB → Form No. 48)
Section 92F	Section 173	Definitions relevant to arm’s length price

Beyond renumbering, the Finance Act, 2025 introduces a genuinely new mechanism: block transfer-pricing assessment. Subject to prescribed conditions, an exercised option, and TPO validation within the specified timeline, an arm’s length price determined for one year can be applied to similar transactions in each of the following two years, reducing the need for repetitive annual benchmarking. It does not apply in search-and-seizure cases. The underlying principles — the arm’s length standard, the FAR analysis, the six pricing methods — carry forward substantially unchanged; what has moved is the numbering, the documentation architecture, and (as Section 9 below covers) the accountant’s report itself.

4. When Do Transfer Pricing Rules Apply?

Transfer pricing provisions generally become relevant when four conditions are jointly satisfied: there is an international transaction or a specified domestic transaction; the transaction is between associated enterprises or falls within a prescribed related-party category; it has a bearing on income, profits, losses, assets or liabilities; and it therefore falls to be evaluated under the applicable arm’s length provisions.

A frequent error is assuming transfer pricing applies only where a conventional invoice is raised. In reality, the rules extend to arrangements that may never generate a standard sales invoice at all — cost allocation or apportionment, expense reimbursements, interest-free or concessional funding, corporate guarantees, royalty or licence arrangements, management and administrative service charges, cost-sharing arrangements, business restructuring, and transfers of intangible assets among them. I always ask clients to review the full range of intercompany financial flows, not merely the sales ledger, before concluding they are out of scope.

5. Associated Enterprises and International Transactions

Associated enterprise. An associated enterprise is one that participates, directly or indirectly, in the management, control or capital of another enterprise — or where the same person participates in both. A series of deeming provisions extends this even without direct control, including: holding at least 26 per cent voting power in another enterprise; the same person holding at least 26 per cent voting power in two enterprises; the power to appoint a majority of directors; substantial dependence on another enterprise’s patents, know-how or technical knowledge; significant dependence on another enterprise for raw materials or sales; specified loan or guarantee relationships; and common control by an individual, HUF or group across multiple enterprises. I examine the complete ownership and commercial relationship — not just the immediate shareholding percentage — before ruling this status out.

International transaction. This generally involves two or more associated enterprises, at least one of which is a non-resident, and covers the purchase or sale of goods or tangible property, the transfer or use of intangible property, the provision or receipt of services, lending or borrowing of money, guarantee arrangements, cost contribution arrangements, business restructuring, and any arrangement affecting profits, income, losses, assets or liabilities. Even a transaction with an ostensibly unrelated third party can require review if it is structured through, or effectively involves, an associated enterprise.

• Software services. An Indian company provides software development services exclusively to its US parent for a fixed cost-plus margin — the margin must be benchmarked against independent software service providers performing comparable functions.
• Import of finished goods. An Indian distributor imports products from an overseas group company for resale in India — typically tested by comparing the distributor’s gross margin against independent distributors under similar conditions.
• Royalty payment. An Indian company pays royalty to its foreign parent for a brand and proprietary technology — the taxpayer must show the payment is commercially justified and consistent with comparable independent arrangements.
• Intercompany loan. A foreign parent lends to its Indian subsidiary — the arm’s length interest rate depends on loan currency, tenure, security, the subsidiary’s credit profile, and prevailing market conditions.

6. Specified Domestic Transactions

Transfer pricing in India is not confined to cross-border dealings. Certain domestic transactions between related parties are also brought within scope — primarily where they involve eligible undertakings claiming specified tax deductions, transfers of goods or services between eligible and other business units of the same entity, or other domestic arrangements affecting profits eligible for deductions.

A reporting threshold of ₹20 crore in aggregate transaction value for a financial year generally applies to specified domestic transactions. This is not a general exemption from arm’s length pricing — businesses must still assess whether a transaction falls within a specified category and whether the applicable conditions are met, irrespective of value, before concluding no obligation arises.

7. Transfer Pricing Methods

Selecting the most appropriate method is central to the analysis, and the choice depends on the nature of the transaction, the availability of reliable comparable data, and the functions performed by the parties.

• Comparable Uncontrolled Price (CUP) Method. Compares the price in a controlled transaction with a comparable uncontrolled transaction — most reliable where the product or service is substantially identical and terms, volume, geography, currency and market conditions align closely.
• Resale Price Method. Applied where a distributor purchases from an associated enterprise and resells to independent customers without significant value addition — the independent resale price is reduced by an appropriate gross margin and relevant expenses to derive the arm’s length purchase price.
• Cost Plus Method. An appropriate mark-up is added to direct and indirect costs — often relevant for contract manufacturing, routine production, semi-finished goods and low-risk intra-group support services.
• Profit Split Method. Combined profit is allocated among associated enterprises based on relative contributions — generally appropriate where both parties own valuable or unique intangibles, operations are highly integrated, or reliable transactional comparables are simply unavailable.
• Transactional Net Margin Method (TNMM). Compares the tested party’s net profit margin against comparable independent companies, using indicators such as operating profit to operating cost, operating profit to sales, return on operating assets, or the Berry ratio. TNMM is the most widely used method in Indian practice because net-margin-level financial data is more readily available than gross-margin or transaction-level pricing data.
• Other Method. A residual category considering the price in the same or a similar uncontrolled transaction, or another approach prescribed under the applicable rules.

Whichever method is selected, the taxpayer must be able to justify clearly why it is the most appropriate, why alternatives were rejected, how comparables were identified, how differences were adjusted, and how the final arm’s length range or result was computed.

8. My Eight-Step Approach to a Transfer Pricing Analysis

1. Identify the parties. Build an ownership and group-relationship chart and determine whether counterparties qualify as associated enterprises.
2. Identify the transactions. Review the general ledger, invoices, agreements, loan schedules, royalty records, expense reimbursements and management accounts — the label on an invoice is not conclusive; a “reimbursement” can in substance contain a service element, a financing element, or an embedded mark-up.
3. Characterise the business. A FAR analysis examines the functions each party performs, the tangible and intangible assets each uses, and which party bears market, inventory, credit, foreign-exchange, product and capacity risks.
4. Select the tested party. Under methods such as TNMM, this is generally the party for which reliable financial data and functional comparability are available.
5. Select the most appropriate method. Choose the method offering the most reliable measure of arm’s length pricing for the specific transaction.
6. Search for comparables. Identify comparable companies or transactions using commercial databases, publicly available information, internal comparables and industry research, adjusting for working capital, capacity utilisation, credit terms, geography, accounting policies, product differences, foreign-exchange exposure and risk profile.
7. Calculate the arm’s length result. Compute the relevant price, margin or profit allocation and compare it with the taxpayer’s actual reported result.
8. Make a primary adjustment, if necessary. Where the actual result falls outside the permissible arm’s length range, taxable income may need to be adjusted accordingly.

9. Compliance Requirements: Form 3CEB, the Move to Form 48, Master File and CbCR

Form 3CEB, for now — and Form No. 48 from Tax Year 2026-27. A person entering into an international transaction or a specified domestic transaction must obtain an accountant’s report covering the taxpayer and its associated enterprises, the nature and value of covered transactions, the methods used, and the accountant’s observations and certification. For FY 2025-26 (AY 2026-27), this remains Form 3CEB under Section 92E of the 1961 Act and Rule 10E, due by 31 October 2026 — one month ahead of the 30 November income tax return due date for taxpayers required to file it. From Tax Year 2026-27 (AY 2027-28) onward, the report becomes Form No. 48 under Section 172 of the Income-tax Act, 2025, read with Rule 85 of the Income-tax Rules, 2026 — a structured, ID-linked, digitally-driven format with significantly expanded disclosure (benchmarking detail, comparability adjustments and APA-coverage mapping built into the form itself, and mandatory UDIN linkage on the certification). The two forms will run in parallel for a period: Form 3CEB for past-year filings, Form No. 48 preparation for current-year transactions. I would flag this to any business assuming “Form 3CEB” is a fixed reference point going forward — it is not.

Transfer pricing documentation (the local file). Businesses must maintain prescribed information supporting their position: the group’s ownership and structure, business and industry profile, transaction-level terms and agreements, FAR analysis, economic and comparable analysis, method-selection rationale, supporting calculations, segmental financial results, and details of prior assessments, APAs or rulings. This should be prepared contemporaneously, alongside the transactions themselves, not reconstructed after a notice arrives. As a practical relief for smaller businesses, the detailed local file is not required where the aggregate value of international transactions, per the books of account, does not exceed ₹1 crore for the year.

Time limit for producing documents. Where tax authorities call for transfer pricing information, the taxpayer may be required to furnish it within 10 days of the notice, with a possible extension of up to 30 days on application. Keep documentation readily accessible, and ensure figures across the local file, the accountant’s report, the income tax return, financial statements and intercompany agreements remain fully consistent.

Master File and Country-by-Country Report. Larger international groups face additional obligations. The Master File — covering organisational structure, business activities, intangibles, financing arrangements and transfer pricing policies, filed in Form 3CEAA — generally becomes applicable where consolidated group revenue exceeds ₹500 crore and either aggregate international transactions exceed ₹50 crore, or transactions involving intangible property exceed ₹10 crore. The Country-by-Country Report (Form 3CEAD), disclosing the global allocation of revenue, profits, employees, assets and taxes across jurisdictions, applies where consolidated group revenue is ₹6,400 crore or more — a threshold raised from an earlier ₹5,500 crore figure by CBDT Notification No. 31/2021 to track the OECD’s €750 million benchmark, and one I still see quoted at the old figure in otherwise-current material. As thresholds, forms (3CEAA, 3CEAB, 3CEAD) and their 2025-Act renumbering may be revised further, year-specific rules should always be confirmed before filing.

10. Role of the Assessing Officer and the Transfer Pricing Officer

The Assessing Officer may refer the determination of the arm’s length price to the Transfer Pricing Officer, with the required approval. Under the 2025 Act, Section 166 provides for this reference where the Assessing Officer considers it necessary or expedient.

Once involved, the TPO may examine agreements and records, request additional information, review the method selected, challenge the comparables used, apply comparability adjustments, and ultimately determine the arm’s length price and propose an adjustment. I encourage clients to respond carefully and comprehensively at this stage, making sure the underlying economic substance of the arrangement is clearly evidenced rather than merely asserted.

11. Primary and Secondary Adjustments

Primary adjustment. This revises the Indian taxpayer’s taxable income to reflect the arm’s length price. If an Indian company pays ₹120 for a service subsequently determined to have an arm’s length value of ₹100, the ₹20 differential may be brought to tax, subject to the applicable provisions and the facts of the case.

Secondary adjustment. This addresses the excess funds that remain with the associated enterprise following a primary adjustment. Under the earlier Section 92CE framework, if this excess money is not repatriated to India within the prescribed period, it may be treated as a deemed advance from the taxpayer to the associated enterprise, with interest computed on the outstanding amount. Section 170 of the 2025 Act carries this mechanism forward — the applicable repatriation period, exemptions, and any option to pay additional tax in lieu of repatriation should be checked against the current provisions before relying on either figure.

12. Safe Harbour Rules, Advance Pricing Agreements and Block Assessment

Safe harbour rules set out specified circumstances in which the tax authorities will accept the transfer price or income declared by the taxpayer, provided prescribed conditions are met. Section 167 of the 2025 Act governs this mechanism, and the CBDT finalised a substantial overhaul in the Income-tax Rules, 2026 (notified 20 March 2026, effective 1 April 2026): the earlier IT, ITeS, KPO and contract-R&D categories are now consolidated into a single “Information Technology Services” category at a uniform 15.5% operating margin, well below the earlier 17–24% range; the eligibility threshold has been raised from ₹300 crore to ₹2,000 crore of aggregate transaction revenue with the foreign principal, tested only in year one of a five-year block; and new categories now cover data-centre services and bonded warehousing for electronic components. The election is made in Form No. 49 — a single application replacing the earlier Forms 3CEFA, 3CEFB and 3CEFC — and documentation under Sections 171 and 172 still applies to every eligible transaction even where safe harbour is claimed. A business still working from pre-2026 safe harbour margins should treat those figures as superseded, not merely dated.

Advance Pricing Agreements (APAs) are agreements between a taxpayer and the tax administration fixing, in advance, the arm’s length price or the manner of determining it for specified future transactions. An APA can address the covered transactions, the method applied, comparables, profit-level indicators, critical assumptions and, where available, a rollback to prior years. I generally see APAs deliver the most value where transactions are high in value, recurring, based on a stable business model, or have already seen repeated dispute.

Block transfer-pricing assessment, introduced under the Finance Act, 2025, complements these certainty mechanisms — see Section 3 above for how the mechanism works and its limits.

13. Common Transfer Pricing Risks I See in Practice

A written agreement alone does not establish arm’s length pricing — the actual conduct of the parties must align with its terms. Group-level management fees, strategic advisory charges or corporate service fees are frequently challenged where the taxpayer cannot clearly evidence what services were actually rendered, who performed them, how the taxpayer benefited, and how the allocation methodology was derived. Transactions are sometimes mischaracterised — labelled a reimbursement, loan, guarantee or royalty without a proper analysis of their underlying economic substance, which tax authorities are entitled to look through. Comparables drawn from different geographies, risk profiles or functional contexts may not withstand scrutiny, and consolidated reporting that fails to separate high-margin and low-margin business segments can undermine an otherwise sound analysis.

Overseas group-level transfer pricing policies often lack India-specific detail, making local documentation essential in its own right. Inconsistencies between financial statements, the tax return, the accountant’s report, invoices and ledgers tend to attract early questions from assessing authorities. And non-invoice arrangements — guarantees, interest-free loans, cost allocations, restructurings and intangible transfers — carry transfer pricing implications even where no conventional sale invoice is ever raised, which is the single most common gap I find when reviewing a group’s intercompany position for the first time.

14. Penalties for Non-Compliance

Consequences depend on the specific default and the law applicable to the relevant year. Under the framework currently governing FY 2025-26 (the Income-tax Act, 1961):

Default	Indicative penalty
Failure to maintain or furnish prescribed documentation, or furnishing incorrect information — Section 271AA	2% of the transaction value, where applicable
Failure to furnish the accountant’s report (Form 3CEB) — Section 271BA	₹1,00,000
Failure to furnish information or documents called for by the TPO — Section 271G	2% of the transaction value, for each failure
Failure to furnish the Master File — Section 271AA(2)	₹5,00,000
CbCR non-compliance — Section 271GB	₹5,000/day (first month), ₹15,000/day thereafter, ₹50,000/day after a penalty order; ₹5,00,000 for inaccurate reporting

Beyond monetary penalties, non-compliance can also trigger a transfer pricing adjustment, additional tax liability with applicable surcharge or cess, interest, secondary-adjustment consequences, denial of deductions, prolonged assessment and appellate proceedings, and potential double taxation where the foreign jurisdiction offers no corresponding relief. Under the Income-tax Act, 2025 (applicable from Tax Year 2026-27), these penalties sit within the consolidated Chapter XXI (Sections 439–472): documentation failure is now dealt with under Section 442 (broadly mirroring the 2% Section 271AA charge, with the Master File penalty carried forward at ₹5,00,000 under Section 442(2)), CbCR penalties move to Section 459, and the general under-reporting/misreporting penalty — which can also attach to a transfer pricing adjustment — sits at Section 439, at 50% of tax on under-reported income and up to 200% where the underreporting amounts to misreporting. The precise new-Act section governing the old Section 271BA/271G equivalents should be confirmed against the finally notified provisions before being relied on for a Tax Year 2026-27 filing.

15. Interaction With GST, Customs and FEMA

Income-tax transfer pricing is a distinct discipline from GST valuation, customs valuation and foreign-exchange reporting, even though the same intercompany transaction may be examined under all of them simultaneously. Transactions between related persons can attract special valuation rules under GST, separate customs valuation requirements at the time of import, withholding-tax analysis for related service or royalty payments, and foreign-exchange reporting obligations. An arm’s length price accepted for income-tax purposes is not automatically conclusive for these other laws. An import of goods from a foreign group company, for instance, may simultaneously require customs valuation on entry, an income-tax transfer pricing analysis, a GST assessment, withholding-tax review for any associated payments, and foreign-exchange reporting — each governed by its own rules, and each requiring reconciliation with the others.

16. Illustrative Case Study: An Ahmedabad Startup With an Overseas Parent

Consider an Ahmedabad-based technology startup owned by an overseas parent company. During the year, the Indian company receives a ₹2 crore shareholder loan and pays ₹30 lakh in interest, provides software development services worth ₹5 crore to the overseas parent, pays ₹20 lakh for use of the parent’s software platform, and receives reimbursement from the parent for certain employee and travel costs.

Rather than treating these as a single “related-party expense” figure, I would separately assess: whether the parent and the Indian company qualify as associated enterprises; whether the loan interest rate is arm’s length; whether the software development margin is supported by comparable independent companies; whether the platform payment should properly be characterised as a royalty, a service fee, or something else; whether the reimbursements are genuine pass-through costs with no embedded mark-up; whether any implicit corporate guarantee or support exists; whether the accountant’s report and prescribed documentation are triggered; whether the group crosses the Master File or CbCR thresholds; and whether a primary adjustment on any one transaction could create a downstream secondary-adjustment obligation. This transaction-by-transaction characterisation, benchmarking and documentation is the standard I hold every engagement to, regardless of the taxpayer’s size. Where the same Indian company also grants employee stock options over the overseas parent’s stock, a related but entirely separate question arises — covered in What Is a 409A Valuation? — since a transfer pricing analysis does not itself answer it.

17. Practical Compliance Checklist

• Prepare an updated group structure and ownership chart
• Identify all associated enterprises
• List every international and specified domestic transaction
• Review agreements, invoices, ledgers and payment records
• Perform a FAR analysis for each material transaction
• Select the most appropriate transfer pricing method
• Prepare a defensible comparable search
• Document all economic assumptions and adjustments
• Reconcile the transfer pricing study with the general ledger and tax return
• Determine whether Form 3CEB (or Form No. 48, once applicable) is required
• Check Master File and CbCR obligations
• Evaluate secondary-adjustment and repatriation requirements
• Review eligibility for safe harbour or an APA
• Monitor intercompany transactions throughout the year, not only at year-end
• Preserve evidence of services received, benefits obtained and commercial rationale
• Recheck the law and forms applicable to the relevant tax year

18. Why Businesses Choose CA Murli Chandak for Transfer Pricing

A transfer pricing position is only as strong as the documentation behind it, and I structure every engagement around that. The support available covers:

• Taxation services — benchmarking, FAR analysis, method selection and the accountant’s report itself, run on your actual intercompany transactions rather than a template study.
• Advisory services — for groups weighing an APA, a safe harbour election, or restructuring intercompany arrangements before they become a dispute.
• CFO services — where transfer pricing planning needs to sit alongside broader cash-flow, funding and reporting decisions.
• Startup advisory — for founders with an overseas parent or investor-linked entity who are encountering these obligations for the first time.

More detail on background and areas of practice is available on the About page.

19. Related Reading

• Taxation Services
• Old vs New Tax Regime for Business Owners
• What Is a 409A Valuation?
• Can an Indian Valuer Do a 409A Valuation?
• Startup Solutions Services

20. Final Takeaway

Transfer pricing is fundamentally a tax-compliance and profit-allocation framework designed to ensure that transactions between associated enterprises reflect genuine market conditions. For Indian businesses, the priorities are unchanged even as the law around them shifts: identify covered transactions early, select and defend an appropriate arm’s length method, maintain contemporaneous documentation, and complete all applicable filings within the prescribed timelines — Form 3CEB by 31 October 2026 for the year now closing, Form No. 48 readiness for the year already under way. Confirm every provision, threshold, form and due date against the latest CBDT notifications for the specific tax year in question before you file.

21. Frequently Asked Questions

Q1. Is transfer pricing illegal?

A: No. Transfer pricing is a routine feature of commercial activity between related enterprises. It becomes a tax concern only when related-party prices are not consistent with arm’s length conditions, or when the required documentation and reporting are not completed.

Q2. Does every related-party transaction require a transfer pricing study?

A: Not necessarily. It depends on the nature of the relationship, whether the transaction is international or a specified domestic transaction, applicable thresholds, reporting requirements, and the law governing the relevant tax year. Even where a detailed study is not strictly mandatory, commercially reasonable pricing and proper supporting records remain important.

Q3. Does transfer pricing apply to startups?

A: Yes. A startup can be covered where it has transactions with a foreign parent, subsidiary, group company, overseas investor-related entity, or any other associated enterprise. Size alone does not remove the obligation.

Q4. Is a foreign shareholder automatically an associated enterprise?

A: No. Foreign ownership alone does not automatically establish an associated-enterprise relationship. The statutory control, voting-power, management, capital and deeming tests must be examined on the specific facts.

Q5. Is Form 3CEB required even when there is no transfer pricing adjustment?

A: Generally, the reporting requirement is linked to entering into a covered transaction, not to whether the taxpayer ultimately makes an adjustment. Confirm the precise requirement for the applicable tax year.

Q6. What is Form No. 48, and has it replaced Form 3CEB?

A: Form No. 48, under Section 172 of the Income-tax Act, 2025 read with Rule 85 of the Income-tax Rules, 2026, is the new accountant’s report replacing Form 3CEB, applicable from Tax Year 2026-27 (AY 2027-28) onward. FY 2025-26 (AY 2026-27) is still governed by Form 3CEB under the 1961 Act — the two forms apply in parallel during the current filing season, to different tax years.

Q7. Can the tax authorities change the price of a transaction?

A: The authorities may determine or propose an arm’s length price where the applicable provisions are triggered and the taxpayer’s own analysis is not accepted. Taxpayers retain statutory rights of assessment response, objection, appeal and dispute resolution throughout.

Q8. Are transfer pricing and valuation the same thing?

A: No. Valuation estimates the worth of an asset, business, share or transaction. Transfer pricing determines the appropriate price or profit allocation for transactions between associated enterprises, for tax purposes. Valuation techniques may support a transfer pricing analysis involving shares, financial instruments or intangibles, but the two disciplines serve different objectives and are not interchangeable.

Discuss Your Transfer Pricing Position

If your business has cross-border group transactions, related-party dealings within India, or you are simply unsure whether last year’s approach still holds under the current thresholds and forms, tell me about your structure and I can map out what your specific transactions actually require.

CA Murli Chandak – FCA | IBBI-Registered Valuer (Securities or Financial Assets) | IBBI/RV/07/2021/14408
Website: murlichandak.com
Phone: +91 99985 39902
Email: murlichandak@murlichandak.com
LinkedIn: Connect with CA Murli Chandak

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This article is intended for general guidance only and does not constitute professional tax advice. Statutory positions are stated as at September 2026 and were verified against the Income-tax Act, 1961 (Sections 92–92F), the Income-tax Act, 2025 (Sections 161–173, 439–472), CBDT Notification No. 31/2021 (CbCR threshold), and the finalised Income-tax Rules, 2026 (notified 20 March 2026), including the Safe Harbour Rules and Form No. 48/Form No. 49. Rules, rates, thresholds and prescribed procedures remain subject to change and, in places, to further notification. Please obtain advice specific to your circumstances before relying on any figure in this article for a filing.