In short: Hyderabad’s transfer pricing exposure rarely announces itself. It shows up the moment a Gachibowli or HITEC City captive centre bills its US or European parent for development and support work, a Genome Valley biotech runs a cost-sharing or contract-research arrangement with an overseas group entity, a bulk-drug or API manufacturer routes exports through a related buying office, or an IT-enabled services unit quietly approaches the revised Safe Harbour thresholds. Once an Indian entity transacts with an associated enterprise — goods, services, royalties, loans, guarantees, cost allocations — that transaction must be priced at arm’s length under Sections 161–173 of the Income-tax Act, 2025 (Sections 92–92F of the 1961 Act still govern FY 2025-26), supported by benchmarking and an accountant’s report filed a month ahead of the 30 November return deadline. This guide covers what triggers the rules, how the arm’s length price and benchmark are actually built, the 2026 compliance and Safe Harbour changes, what a Transfer Pricing Officer examines, why Hyderabad’s business base is particularly exposed, and how I support businesses here through all of it.
Contents
- 1. Why Transfer Pricing Matters for Hyderabad Businesses
- 2. Associated Enterprises and International Transactions, in Brief
- 3. Transactions That Most Often Trigger a Review
- 4. How the Arm’s Length Price Is Determined
- 5. Benchmarking: Where Most Disputes Actually Start
- 6. Documentation and the 2026 Compliance Reset: Form 3CEB to Form No. 48
- 7. Safe Harbour Under the New Rules
- 8. What Happens During a Transfer Pricing Assessment
- 9. Penalties for Non-Compliance
- 10. Why Hyderabad’s Business Base Is Particularly Exposed
- 11. Transfer Pricing Services From CA Murli Chandak
- 12. Choosing the Right Transfer Pricing Consultant in Hyderabad
- 13. Frequently Asked Questions
- Discuss Your Transfer Pricing Position
1. Why Transfer Pricing Matters for Hyderabad Businesses
Transfer pricing determines the price at which two related, or “associated,” enterprises transact with one another. Indian law requires that price to reflect what independent, unrelated parties would have agreed to under comparable conditions — the arm’s length price. It is not a large-multinational concern reserved for Mumbai or Bengaluru head offices. A Hyderabad-based global capability centre invoicing its overseas parent, a Genome Valley biotech running a licensing or R&D cost-sharing arrangement, a bulk-drug or API exporter selling to a related buying office abroad, or a software captive unit billing a group entity can all fall squarely within the framework, regardless of size.
The consequence of getting this wrong is not a paperwork inconvenience. If a Transfer Pricing Officer determines that a related-party price was not at arm’s length, the difference can be added back to taxable income, with interest, and — separately — penalties can attach to documentation and reporting failures whether or not any adjustment is ultimately made. For a business with recurring intercompany transactions, that risk compounds every year the position goes unreviewed.
2. Associated Enterprises and International Transactions, in Brief
Two conditions generally need to be satisfied together before transfer pricing applies: the parties must qualify as associated enterprises — broadly, entities connected through ownership, voting power, management control, or one of several deeming provisions (26 per cent voting power, the power to appoint a majority of directors, dependence on shared patents or technical know-how, common control by an individual or family group, among others) — and the transaction itself must be an international transaction (involving at least one non-resident party) or a specified domestic transaction between related domestic entities, generally relevant above an aggregate value of ₹20 crore for the year.
I go into the full mechanics of both tests, including the complete deeming-provision list and how the two tax years’ section numbers map onto each other, in What Is Transfer Pricing? — worth reading first if you are new to the subject. This page focuses on what a Hyderabad business specifically needs to do about it.
3. Transactions That Most Often Trigger a Review
Transfer pricing is not limited to a straightforward sale or purchase of goods. In practice, I most often see the following categories require analysis in Hyderabad:
- Software development and IT-enabled services. Captive development centres and global capability centres across HITEC City, Gachibowli and Madhapur billing a US, European or Asia-Pacific parent for development, testing, technical support or back-office work.
- Contract research and cost-sharing arrangements. Pharma, biotech and life-sciences companies in and around Genome Valley running R&D, clinical-trial or cost-sharing arrangements with an overseas group entity — one of the most benchmarking-intensive categories in the framework.
- Royalties and intangibles. Payments for a drug formulation, process patent, software licence or brand — frequently the hardest category to benchmark, since a market rate for a specific piece of intellectual property is rarely observable, and commonly examined under the DEMPE framework (development, enhancement, maintenance, protection and exploitation of intangibles).
- Inter-company loans and guarantees. Financing from an overseas parent to a Hyderabad subsidiary, or a guarantee given by one group entity on another’s bank facility — the interest rate, tenor, security and credit profile all need to be tested against arm’s length terms.
- Cost allocations and reimbursements. Shared technology, personnel or administrative costs apportioned across group entities in shared-service and GCC structures — the allocation basis and whether a mark-up should apply both need documentation, and a payment labelled “reimbursement” is not automatically outside scope.
- Export of bulk drugs, APIs and engineering goods to related buying offices, group distributors or manufacturing affiliates abroad.
The correct treatment depends on the transaction’s actual substance and contractual terms, not the label used in the books of account.
4. How the Arm’s Length Price Is Determined
Every transfer pricing analysis starts with a Functional, Asset and Risk (FAR) analysis: what activities each entity actually performs, what tangible and intangible assets it uses, and which entity carries market, credit, inventory, foreign-exchange and other commercial risks. A routine service provider bearing limited risk should expect a stable, modest return; an entrepreneurial entity carrying full market risk should expect a materially different one.
Once the FAR profile is established, the Most Appropriate Method is selected from six prescribed options — Comparable Uncontrolled Price, Resale Price, Cost Plus, Profit Split, Transactional Net Margin Method (TNMM), and a residual “Other Method.” TNMM is the most commonly applied in Indian practice, largely because reliable net-margin data on comparable independent companies is easier to obtain than transaction-level price or gross-margin data — which is also why it dominates in Hyderabad’s captive IT and ITeS sector. The full mechanics of each method, and the eight-step process I follow to move from FAR analysis to a defensible arm’s length conclusion, are set out in What Is Transfer Pricing?
5. Benchmarking: Where Most Disputes Actually Start
Benchmarking is the process of testing a related-party transaction against what independent parties actually did — and it is, in my experience, where the majority of transfer pricing disputes originate. A Transfer Pricing Officer reviewing a benchmarking study will typically question the comparable companies selected (and rejected), the filters applied, whether the tested party was chosen correctly, the profit-level indicator used, whether adjustments for working capital or risk differences were needed, and how extraordinary items or segmental results were handled.
A defensible benchmark does more than land on a favourable margin. It builds a transparent, logical trail — nature of the transaction, functions and risks, comparable search strategy, financial analysis, and final arm’s length conclusion — that someone who was not involved in the original work can follow and test. That is the standard every benchmarking study in this practice is built to.
6. Documentation and the 2026 Compliance Reset: Form 3CEB to Form No. 48
Transfer pricing compliance in India is going through a genuine structural change, and Hyderabad businesses with transactions spanning both tax years need to track the transition carefully.
For FY 2025-26 (Assessment Year 2026-27) — the year most businesses are currently closing — the governing law remains the Income-tax Act, 1961, and the accountant’s report is Form 3CEB under Section 92E and Rule 10E, due 31 October 2026, one month ahead of the 30 November 2026 income tax return deadline for taxpayers required to file it.
From Tax Year 2026-27 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, transaction-by-transaction, ID-linked format that discloses benchmarking detail, comparability adjustments and Advance Pricing Agreement coverage within the form itself, rather than only in the underlying study. Form No. 48 must be filed at least one month before the due date for furnishing the return of income under Section 263(1) for the relevant tax year.
| Aspect | FY 2025-26 (AY 2026-27) | Tax Year 2026-27 onward |
|---|---|---|
| Governing law | Income-tax Act, 1961 (Sections 92–92F) | Income-tax Act, 2025 (Sections 161–173) |
| Accountant’s report | Form 3CEB, Rule 10E | Form No. 48, Section 172, Rule 85 |
| Report due date | 31 October 2026 | One month before the Section 263(1) return due date |
| Return due date (TP taxpayers) | 30 November 2026 | 30 November of the relevant tax year (unless extended) |
Alongside the accountant’s report, businesses must maintain contemporaneous transfer pricing documentation covering the group’s ownership structure, the FAR analysis, the economic and comparable analysis, the method-selection rationale and supporting calculations — prepared alongside the transactions themselves, not reconstructed after a notice arrives. As a practical relief, a detailed local file is not required where the aggregate value of international transactions for the year does not exceed ₹1 crore, though the underlying pricing must still be commercially reasonable.
FY 2025-26’s Form 3CEB is due 31 October 2026 — and Form No. 48 preparation for Tax Year 2026-27 is already running in parallel.
If your Hyderabad business has cross-border group transactions and this season’s documentation isn’t yet under way, or you’re unsure whether last year’s benchmarking still holds up, I can review your actual transactions on a short call.
7. Safe Harbour Under the New Rules
Safe Harbour lets an eligible taxpayer accept a prescribed margin or price for specified categories of transactions instead of running a fresh annual benchmarking exercise, in exchange for greater certainty. The framework has been substantially widened under the Income-tax Rules, 2026 (finalised 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% margin on operating expenses — well below the earlier 17–24% range.
- The eligibility threshold has been raised from ₹300 crore to ₹2,000 crore of aggregate eligible transaction revenue, tested only in the first of a five-consecutive-year block.
- The election is made in a single, consolidated Form No. 49, replacing the earlier Forms 3CEFA, 3CEFB and 3CEFC.
- New categories now also cover data-centre services and bonded warehousing for electronic components, reflecting the push toward India as a cloud-infrastructure and electronics-manufacturing hub.
For Hyderabad specifically, this is not a marginal change. JLL’s 2026 India GCC guide places Hyderabad at 20–23% of the country’s GCC market — second only to Bengaluru, and home to 355+ global capability centres employing over 200,000 professionals. A large share of that base sits in exactly the “Information Technology Services” category the revised Safe Harbour now targets, and the widened ₹2,000 crore threshold brings genuinely large-scale captive operations into scope for the first time, not just smaller entities as before. That said, Safe Harbour is a certainty trade, not an automatic saving: accepting a prescribed margin also means forgoing Mutual Agreement Procedure relief for that transaction, so the decision should follow a comparison against what a conventional benchmark would actually support — not a default election made for convenience. Documentation obligations continue to apply to every eligible transaction even where Safe Harbour is claimed.
8. What Happens During a Transfer Pricing Assessment
Where the Assessing Officer refers a case to the Transfer Pricing Officer, the TPO can examine agreements and records, request additional information, review the transfer pricing method selected, challenge the comparables used, apply comparability adjustments, and ultimately propose an adjustment to taxable income.
A transfer pricing notice should never be treated as a routine information request. The response should work through the transaction under examination, the specific questions raised, the existing documentation and FAR analysis, the benchmarking methodology, and the supporting financial and commercial evidence — presenting a clear, internally consistent, evidence-based position rather than simply defending the margin originally reported.
9. Penalties for Non-Compliance
Consequences depend on the specific default and the law governing the relevant tax year. Under the framework currently applicable to FY 2025-26 (the Income-tax Act, 1961):
| Default | Indicative penalty |
|---|---|
| Failure to maintain or furnish prescribed documentation — 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 called for by the TPO — Section 271G | 2% of the transaction value, per failure |
| Failure to furnish the Master File — Section 271AA(2) | ₹5,00,000 |
Under the Income-tax Act, 2025 (applicable from Tax Year 2026-27), these consequences sit within the consolidated Chapter XXI: documentation failure broadly mirrors the earlier 2% charge under Section 442, 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. Beyond monetary penalties, non-compliance can trigger the underlying tax adjustment itself, interest, secondary-adjustment consequences, and extended assessment or appellate proceedings. I’d always recommend confirming the precise provision and figure against the finally notified law for the specific tax year before relying on it for a filing.
10. Why Hyderabad’s Business Base Is Particularly Exposed
Hyderabad’s economy gives it a distinctive transfer pricing profile, built on a smaller number of very deep sectors rather than broad diversification.
- Global capability centres and IT/ITeS. Hyderabad hosts 355+ global capability centres employing over 200,000 professionals, and JLL’s 2026 India GCC guide places the city at 20–23% of the country’s GCC market, second only to Bengaluru. State government figures reported in August 2026 count nearly 150 new GCC wins for Telangana in just 20 months, generating nearly 150,000 high-skilled jobs — almost all of it billed back to an overseas parent under an intercompany services agreement.
- Pharma, biotech and life sciences. Genome Valley anchors a life-sciences cluster of 200+ companies from 18 countries across roughly 2,000 acres, and Telangana accounts for about 35% of India’s pharmaceutical production. Hyderabad’s long-standing role as a bulk-drug and API manufacturing base means contract manufacturing, R&D cost-sharing and royalty arrangements with overseas group entities are a routine feature here, not an exception.
- Engineering and export manufacturing. A base of component and engineering exporters routinely sells to, or sources from, related buying offices and group entities abroad.
- Startups moving to an overseas holding structure. Companies incubated through T-Hub and WE Hub increasingly flip to a Delaware or Singapore holding company ahead of a priced round, which immediately creates an associated-enterprise relationship with the Indian operating entity, often before the founders have thought about transfer pricing at all.
- Family-owned groups with an international footprint. Many of Hyderabad’s established business houses now run entities in more than one country. The commercial closeness of a family relationship does not remove the arm’s length requirement between the entities themselves.
Businesses in each of these categories tend to assume the transaction is “just an internal group matter” until a TPO examination says otherwise. An early applicability review, before the transaction pattern is set for the year, is consistently cheaper than a retrospective fix.
11. Transfer Pricing Services From CA Murli Chandak
Transfer pricing work in this practice runs from an initial applicability check through to assessment support, structured around the business’s actual transactions rather than a generic template:
- Applicability review. Confirming whether your associated-enterprise relationships and transactions fall within the international-transaction or specified-domestic-transaction framework, before it becomes a year-end compliance surprise.
- FAR analysis and method selection. Establishing the functional and risk profile of each entity and choosing the transfer pricing method that gives the most reliable arm’s length result for the specific transaction.
- Benchmarking studies. Comparable company searches, functional comparability screening, profit-level indicator analysis and comparability adjustments, built to withstand scrutiny rather than simply to produce a number.
- Documentation and the accountant’s report. Transfer pricing documentation, and the applicable accountant’s report — Form 3CEB for FY 2025-26, Form No. 48 as Tax Year 2026-27 comes into force — coordinated with your income-tax return.
- Safe Harbour advisory. Checking eligibility under the revised 2026 rules and comparing the Safe Harbour outcome against a conventional benchmark before you elect — particularly relevant for Hyderabad’s IT/ITeS and GCC entities now within the widened threshold.
- TPO assessment support. Reviewing notices, preparing responses, and defending the benchmarking methodology and comparables where a transaction is selected for examination.
- Valuation of financial transactions and intangibles. Where a transfer pricing question turns on the value of a loan, guarantee, equity instrument or intangible asset, that work draws directly on this practice’s valuation background, including work for funds and companies across seven countries.
This sits alongside the practice’s broader taxation services and advisory services, so transfer pricing planning doesn’t happen in isolation from the rest of a group’s tax and reporting position.
12. Choosing the Right Transfer Pricing Consultant in Hyderabad
A transfer pricing engagement is only as strong as the reasoning and evidence behind it. When evaluating a consultant, it’s worth checking for:
- Relevant transaction experience — IT/ITeS services, pharma R&D and licensing, royalties, financing and guarantees, cost allocations — rather than a single-industry background applied to every client.
- Genuine benchmarking capability — the ability to identify, defend and, where needed, reject comparables, rather than simply running a database search and presenting the first result.
- Broader international tax fluency — how transfer pricing interacts with double taxation agreements, withholding tax, FEMA reporting and permanent establishment exposure, since these rarely arrive as isolated questions.
- Valuation capability where the transaction involves shares, financial instruments, guarantees or intangible assets — the arm’s length outcome there often turns on the underlying value, not just an operating margin.
- Assessment and TPO representation experience — not just report preparation, since the report’s real test comes if and when it is examined.
- Fluency in the 2025-26 transition — knowing which Act, form and section number applies to which tax year, and not carrying an old figure or form reference forward into a current filing by mistake.
I’m a Fellow Chartered Accountant with over eight years in practice and an IBBI-Registered Valuer (Securities or Financial Assets), and I’ve completed 300+ valuations across seven countries including the United States — work that regularly sits alongside transfer pricing questions involving financing, guarantees and intangible assets. I already work with Hyderabad companies remotely on Virtual CFO, ESOP, valuation and trademark matters, and transfer pricing engagements run on the same model: video-first, with in-person availability for a board meeting or a TPO hearing where it genuinely matters.
13. Frequently Asked Questions
Q1. Does transfer pricing apply to a small or mid-sized Hyderabad company, or only large multinationals?
A: It applies based on whether your transactions and counterparties meet the associated-enterprise and international-transaction (or specified-domestic-transaction) tests — turnover alone does not exempt a business. A modestly sized GCC or export unit billing a related overseas entity can be squarely within scope.
Q2. We already have a Form 3CEB filed every year — do we still need a fresh benchmarking review?
A: Generally yes, at least periodically. Margins, comparables and business circumstances can shift year to year, and a benchmark that held up two years ago is not automatically still defensible today, particularly heading into the Form No. 48 transition.
Q3. What is the practical difference between Form 3CEB and Form No. 48?
A: Form 3CEB, under the 1961 Act, still applies for FY 2025-26. Form No. 48, under Section 172 of the Income-tax Act, 2025 and Rule 85 of the Income-tax Rules, 2026, applies from Tax Year 2026-27 and requires structured, transaction-by-transaction disclosure — including benchmarking and comparability detail — within the form itself, rather than only in the supporting study.
Q4. Is Safe Harbour a good option for our GCC or IT/ITeS entity?
A: It can be, particularly now that the eligible revenue threshold has risen to ₹2,000 crore and the margin has fallen to a uniform 15.5% — a change that brings a meaningfully larger share of Hyderabad’s GCC base into scope. But it should follow a comparison against what your actual benchmarking would support, since electing Safe Harbour also gives up Mutual Agreement Procedure protection for that transaction.
Q5. What happens if our related-party pricing is found not to be at arm’s length?
A: The Transfer Pricing Officer can propose an adjustment to your taxable income for the difference, potentially with interest, and separate penalties can apply to documentation or reporting failures regardless of whether an adjustment is ultimately made. You retain statutory rights to respond, object and appeal throughout the process.
Q6. Do family-owned groups with entities abroad need to worry about this?
A: Yes. The commercial trust within a family-run group does not remove the arm’s length requirement between its separate legal entities once they qualify as associated enterprises. This is one of the most common gaps I find when reviewing a growing family business’s cross-border transactions for the first time.
Discuss Your Transfer Pricing Position
If your Hyderabad business has cross-border group transactions, related-party dealings, or you’re simply unsure whether last year’s approach still holds up under the 2026 changes, 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, 263, 439–472), 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.
Related reading: What Is Transfer Pricing? | Virtual CFO in Hyderabad | ESOP Consultant in Hyderabad | Registered Valuer in Hyderabad | GST Consultant in Hyderabad | Trademark Consultant in Hyderabad