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Transfer Pricing and International Tax in India

Transfer pricing is the rule that every transaction between your Indian entity and a foreign group company, a service fee, a royalty, a loan, a sale of goods, has to be priced as if the two sides were unrelated. If the Indian tax department finds a price is not at arm's length, it can re-price the transaction itself and tax the difference, and there is no minimum transaction size before the rule applies. For a foreign parent, this touches almost every intercompany arrangement from the first year of operation, not only large or unusual deals.

This hub also covers the international tax questions that sit next to pricing itself: safe harbour rules and advance pricing agreements as alternatives to benchmarking every year, GAAR as the backstop against arrangements built mainly for a tax result, and BEPS and Pillar Two as the international project reshaping how large groups are taxed across borders. Where a transfer pricing adjustment leads to double taxation, mutual agreement procedure and the relevant tax treaty are usually the route back out of it.

NRIs and foreign investors meet this hub mostly through indirect transfer tax: selling shares in an offshore holding company that owns an Indian business can still be taxed in India, even though the sale itself happens abroad. Licensing intellectual property into an Indian subsidiary, or building it there through a captive team, raises a version of the same pricing question. The pages below move from the basic principle to documentation, disputes and the wider international rules around it.

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  1. Transfer Pricing

    The arm's length principle in plain terms, useful before the compliance detail on the rest of this hub.

  2. Transfer Pricing in India: What Every Foreign Parent Must Know

    Written for a foreign parent new to the rules: what counts as an international transaction and who must comply.

  3. OECD Transfer Pricing Guidelines vs India's Rules

    For readers used to OECD guidelines: where India's rules track them and where they diverge.

  4. Transfer Pricing Documentation: Master File, Local File & CbCR (Section 171)

    The master file, local file and country-by-country layers your Indian entity may need to hold.

  5. How to Avoid Transfer Pricing Audit: 7 Red Flags

    Practical warning signs a Transfer Pricing Officer looks for, useful before you finalise a year's pricing.

  6. Transfer Pricing By Country

    Jump to the transfer pricing notes for dealings with your own home country.

If your Indian subsidiary deals with its foreign parent in any amount, an accountant's report is due every year, and transfer pricing documentation and filing covers the benchmarking and the Form 48 together. Where a pricing decision interacts with treaty relief, GAAR exposure or how the group is structured, cross-border tax structuring advice looks at the whole arrangement rather than one filing at a time.

transfer pricing methods

India prescribes a fixed set of methods for pricing a transaction with a group company; you cannot simply keep head office's internal price. The right method depends on what is being priced, goods, services, a royalty, a loan, and what comparable data actually exists. Choose the wrong method and the benchmarking built on it is likely to be rejected too.

TP documentation and Form 48

Any year an Indian entity has an international transaction with a foreign associated enterprise, an accountant has to certify Form 48 (formerly Form 3CEB). Once those transactions pass ₹1 crore in the year, a full transfer pricing study also has to exist by a specified date ahead of the return. Treat it as a file kept live from day one.

safe harbour rules

Certain transactions, typically lower-risk software or IT-enabled services, contract research, or an intra-group loan or guarantee, can opt into a margin or rate the tax department has already agreed to accept. It trades a possibly better price for certainty, and the option has to be exercised in time and within the years the rules cover.

advance pricing agreements

An advance pricing agreement fixes the pricing method for a set of transactions several years ahead, agreed directly with the tax authority, and can be extended backward to earlier open years through a rollback. It suits a recurring arrangement, such as a captive centre's fee to its parent, better than a one-off transaction.

TP disputes and DRP

If a Transfer Pricing Officer proposes an adjustment, you can object before the assessment is finalised through the Dispute Resolution Panel rather than waiting for a later appeal. That route is only open at the draft-order stage, so the moment to engage is when the Assessing Officer's draft order arrives, not after the final order is passed.

BEPS and Pillar Two

BEPS is the OECD-led project against multinationals shifting profit into low-tax locations, and Pillar Two is its newest piece: a global minimum tax that can claw back top-up tax elsewhere if an Indian group entity's effective rate falls too low. It targets large groups above the revenue threshold the OECD framework sets, not a small subsidiary on its own.

GAAR and anti-avoidance

General anti-avoidance rules let the tax department look past the legal form of an arrangement, including a transfer pricing structure, where its main purpose is a tax benefit and it fails a statutory test such as lacking commercial substance. A defensible price can still be challenged if the wider arrangement looks built for tax first.

indirect transfer tax

India can tax the gain when shares of a foreign holding company are sold if that foreign company derives most of its value from assets located in India, even though the transaction itself happens entirely offshore. This catches NRIs and foreign investors exiting an overseas holding structure built around an Indian business, not only direct sales of Indian shares.

secondary adjustments

Once a transfer pricing adjustment increases an Indian entity's income, the excess money can be treated as still sitting with the foreign related party until it is repatriated, and deemed to earn notional interest meanwhile. It follows a primary adjustment, whether the officer made it, an APA or MAP agreed it, or you made it yourself in the return.

cost-plus and GCC pricing

A captive centre, whether a GCC, a contract research unit or a back-office team, is usually priced on a cost-plus basis: its costs plus a mark-up, benchmarked against independent companies doing comparable work. The mark-up you can defend depends on what the Indian unit actually does, owns and risks, not on a round number copied from another group's structure.

thin capitalisation

Thin capitalisation rules limit how much interest on a related-party loan into an Indian entity can be deducted, so that debt from the parent is not used to move profit out of India as interest instead of dividends. It sits alongside, and interacts with, the ordinary pricing rules for the loan itself.

CFC and home-country tax

Some parent countries tax their own shareholders on income earned by a controlled foreign company, such as an Indian subsidiary, before that income is actually distributed. This is a foreign-country rule, not an Indian one, so it depends on where the parent is based, but it can still shape how the group wants to price and structure the Indian entity.

intangibles and IP transfer

Licensing or assigning intellectual property to an Indian subsidiary, or letting an Indian team create IP through research work, raises pricing questions on top of the ordinary tax and FEMA ones: what the licence fee or purchase price should be, and who legally owns what the team builds. Settle ownership and pricing before the work starts, not after.

More on transfer pricing

Frequently Asked Questions

Does transfer pricing law apply if my Indian subsidiary's dealings with its parent are small?

Yes. The arm's length pricing requirement applies to any international transaction with an associated enterprise regardless of value, and the accountant's report in Form 48 is still due. Only the full documentation set is relaxed where the year's international transactions total ₹1 crore or less, and you must still be able to show the pricing was at arm's length.

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Is Form 3CEB still the right form to file for transfer pricing?

For tax years under the Income-tax Act, 2025, from 1 April 2026, Form 3CEB is replaced by Form 48 under Rule 85 of the Income-tax Rules, 2026. Reports for earlier years were made in Form 3CEB, so for the year that ended 31 March 2026, confirm with your accountant which form the portal takes.

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Can India tax an NRI or foreign investor for selling shares in an offshore company that owns an Indian business?

Yes, if the offshore company derives most of its value from assets located in India, the gain on that offshore sale can still be taxed in India as an indirect transfer, even though no Indian shares changed hands directly.

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Sources

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