Dispute Resolution Panel (DRP)

What Is a Dispute Resolution Panel?

A Dispute Resolution Panel (DRP) is a three-member collegium of senior income-tax officers that reviews a draft assessment order before it becomes final, whenever the Assessing Officer proposes a variation prejudicial to an eligible foreign investor or a taxpayer with a transfer-pricing adjustment. Instead of waiting to appeal a completed assessment, the eligible assessee can object to the draft order directly with the DRP, which then issues binding directions to the Assessing Officer on how to finish the assessment.

The DRP exists specifically to give foreign companies, other non-resident taxpayers, and anyone hit with a transfer-pricing adjustment a faster, specialist review before tax is formally assessed — rather than forcing them into the ordinary first-appeal process.

Legal Basis

Section 275 of the Income-tax Act, 2025 (Section 144C of the Income-tax Act, 1961)

The DRP mechanism is codified in section 275 of the Income-tax Act, 2025 (section 144C of the Income-tax Act, 1961), which came into force on 1 April 2026. Because section 536(2)(c) keeps the 1961 Act in force for any tax year beginning before that date, section 144C still governs DRP references for FY 2025-26 and earlier, while section 275 governs FY 2026-27 onward — the mechanism itself is unchanged across the renumbering.

Under section 275(17)(a), a "Dispute Resolution Panel" means a collegium of three Principal Commissioners or Commissioners of Income-tax constituted by the Central Board of Direct Taxes (CBDT) for this purpose.

Who Can Approach the DRP — Eligible Assessees

Section 275(17)(b) limits access to the DRP route to two categories of "eligible assessee":

• Any person — including an Indian company — whose proposed variation arises as a consequence of a Transfer Pricing Officer's order under section 166(6) of the Income-tax Act, 2025. This covers ordinary Indian subsidiaries and group entities caught by a transfer-pricing adjustment, not only foreign taxpayers.
• Any non-resident (not being a company), or any foreign company — regardless of whether the variation involves transfer pricing at all. A foreign company's branch, project office, or permanent establishment facing any prejudicial variation in its Indian assessment qualifies here.

Section 275(18) carves out an exception: an eligible assessee for DRP purposes does not include a person assessed under the special search-assessment procedure in section 292(1), or the "undisclosed income of any other person" provision in section 295. Section 275(16) similarly excludes any assessment or reassessment order passed with the prior approval of a Principal Commissioner or Commissioner under section 274(12), and section 275(19) excludes proceedings under Chapter XVI-B of the Act. Taxpayers in those categories must use the ordinary appeal route instead.

How the DRP Process Works

The process runs in a fixed sequence with statutory deadlines at each step:

1. Draft order forwarded. Before finalising an assessment that would be prejudicial to an eligible assessee, the Assessing Officer must first forward a draft order of assessment to the assessee, rather than passing a final order directly — section 275(1).
2. 30-day response window. Within thirty days of receiving the draft order, the eligible assessee must either (a) file acceptance of the variations with the Assessing Officer, or (b) file objections with both the DRP and the Assessing Officer — section 275(2).
3. No objection filed, or accepted. If the assessee accepts the draft order, or no objection is filed within the thirty days, the Assessing Officer completes the assessment on the basis of the draft order, and must pass that final order within one month from the end of the month in which the acceptance was received or the objection period expired — section 275(3) and 275(4)(a).
4. Objections filed — DRP review. Where objections are filed, the DRP examines them and may direct further enquiry itself, or have an income-tax authority carry one out and report back, before issuing directions — section 275(7).
5. Hearing and directions. The DRP must give the assessee an opportunity of being heard before issuing any direction prejudicial to the assessee, and must give the Assessing Officer a hearing before issuing any direction prejudicial to revenue — section 275(12). Directions must be issued in writing, stating the points for determination, the decision, and the reasons — section 275(6).
6. 9-month deadline for directions. The DRP cannot issue directions later than nine months from the end of the month in which the draft order was forwarded to the eligible assessee — section 275(13).
7. Binding effect and final order. Every direction issued by the DRP is binding on the Assessing Officer — section 275(11). On receiving the directions, the Assessing Officer must complete the assessment in conformity with them, without giving the assessee any further hearing, within one month from the end of the month the direction is received — section 275(14)(a).

Within that process, the DRP's own powers are also bounded. Under section 275(8), the panel may confirm, reduce, or enhance the variations proposed in the draft order — but it cannot set aside a proposed variation, and it cannot direct further enquiry as a substitute for deciding the objection itself. Under section 275(9), when enhancing a variation the DRP may consider any matter arising out of the assessment proceedings, even one the assessee never raised. If the panel's three members disagree, section 275(10) resolves the split by majority opinion.

Why the DRP Matters for Foreign Companies and Investors

For a foreign company or non-resident investor, the DRP changes both the sequence and the speed of a tax dispute:

• Review happens before the order is final. Ordinary taxpayers only get to contest an assessment after it is passed, through an appeal. An eligible assessee sees the Assessing Officer's proposed variation in draft form and can have it reviewed by a specialist three-member panel before any tax demand crystallises.
• A hard clock applies. The DRP must rule within nine months of the draft order, giving a foreign company a predictable outer limit for that stage of the dispute — compared with the open-ended timelines that can affect first-appeal proceedings.
• The next appeal skips a level. Under section 357(d) and (e) of the Income-tax Act, 2025, a final assessment order passed in pursuance of DRP directions is specifically excluded from the list of orders appealable to the Commissioner (Appeals). Instead, section 362(1)(d) allows the assessee to appeal that order directly to the Appellate Tribunal — one level higher than where an ordinary taxpayer's dispute would start.
• Transfer pricing exposure is covered either way. Because eligible-assessee status extends to any taxpayer facing a Transfer Pricing Officer adjustment (not only non-residents), an Indian subsidiary of a foreign parent can use the DRP route for a TP dispute even though the subsidiary itself is a domestic company.

Worked Example

A foreign company operates a project office in India that the Assessing Officer treats as having generated more taxable profit than reported. Because the taxpayer is a foreign company, it is an eligible assessee under section 275(17)(b)(ii) regardless of whether transfer pricing is involved. The Assessing Officer forwards a draft assessment order proposing to add INR 8 crore of profit.

The foreign company has thirty days from receipt to respond. It disagrees with the addition and, within that window, files objections with both the DRP and the Assessing Officer rather than accepting the variation. The DRP examines the objections, may order further enquiry, and must give the company a hearing before ruling. Counting from the end of the month the draft order was issued, the DRP has up to nine months to issue written directions — for example, reducing the addition to INR 3 crore. Those directions bind the Assessing Officer, who must pass the final assessment order within one month of receiving them, with no further hearing. If the foreign company still disagrees with the reduced INR 3 crore addition, its appeal goes straight to the Appellate Tribunal, not to the Commissioner (Appeals).

Frequently Asked Questions

Who qualifies as an "eligible assessee" for DRP purposes?

Two categories qualify under section 275(17)(b): any person (including an Indian company) whose proposed variation follows a Transfer Pricing Officer's order, and any non-resident who is not a company, or any foreign company, regardless of whether transfer pricing is involved. Persons assessed under the search-assessment provisions in sections 292(1) or 295 are excluded.

How long does an eligible assessee have to object to a draft order?

Thirty days from receiving the draft assessment order. Within that window the assessee must either accept the proposed variations or file objections with both the Dispute Resolution Panel and the Assessing Officer. Missing the deadline is treated the same as accepting the draft order.

How long can the DRP take to issue its directions?

Up to nine months from the end of the month in which the draft order was forwarded to the eligible assessee. The Assessing Officer then has a further one month from the end of the month the direction is received to pass the final assessment order in conformity with it.

Are DRP directions binding, and how are they appealed?

Yes — every direction the DRP issues is binding on the Assessing Officer. A final assessment order passed under those directions cannot be appealed to the Commissioner (Appeals); instead, the assessee appeals it directly to the Appellate Tribunal, skipping the first-appeal stage that ordinary assessments go through.

Can the DRP set aside the Assessing Officer's proposed variation?

No. The panel may confirm, reduce, or enhance a proposed variation, and in enhancing it may consider matters the assessee never raised, but it cannot set the variation aside outright or direct further enquiry in place of deciding the objection. If its three members disagree, the majority view governs.

See also: International Tax Dispute Resolution, Transfer Pricing, and Advance Ruling.

Facing a draft assessment order or a transfer-pricing adjustment in India? Beacon Filing helps foreign companies and investors manage DRP objections and cross-border tax disputes.