Who needs transfer pricing compliance in India?
Any Indian company, LLP or branch that has a transaction with a foreign associated enterprise needs transfer pricing compliance — the obligation is triggered by the transaction, not by size. Section 161 of the Income-tax Act, 2025 (section 92 of the Income-tax Act, 1961) requires income and expenses from an international transaction to be computed at the arm's length price, and section 172 requires every person who entered into one during the tax year to obtain and file an accountant's report.
Two definitions decide whether you are in scope:
- Associated enterprise — section 162 of the Income-tax Act, 2025 (section 92A of the Income-tax Act, 1961). The common tests: one enterprise holds, directly or indirectly, shares carrying at least 26% of the voting power in the other; the same person holds 26% in both; a loan from one is at least 51% of the book value of the other's total assets; one guarantees at least 10% of the other's borrowings; one appoints more than half the board or any executive director of the other; or the Indian business depends wholly on the other's know-how, patents or trademarks, gets at least 90% of its raw materials and consumables from the other (or persons it specifies) at prices and on conditions the other influences, or sells its output to the other (or persons it specifies) at prices and on conditions the other influences. Almost every foreign parent and its wholly owned subsidiary qualifies. See our associated enterprise glossary entry.
- International transaction — section 163 of the Income-tax Act, 2025 (section 92B of the Income-tax Act, 1961): a transaction between associated enterprises, at least one of them non-resident, including sale or use of tangible and intangible property, lending, borrowing and guarantees, services of every kind, cost-sharing arrangements, business restructurings and any other transaction affecting profits. A deal with an unrelated party is deemed international where there is a prior agreement between that party and your associated enterprise, or the terms are in substance set between them.
For a foreign-owned Indian subsidiary the usual list is: software, IT-enabled or R&D services billed to the parent; management, group-service or shared-service fees paid abroad; royalties and brand fees; purchase of the parent's products for resale; intercompany loans and guarantees; reimbursement of salaries of seconded staff; and share issues or transfers within the group. A branch office of a foreign company is also caught, because the definition of enterprise includes a permanent establishment.
One protection runs in your favour: section 161(4) says the arm's length rule does not apply if it would reduce the income, or increase the loss, shown in the books. Transfer pricing can only push Indian taxable profit up.
What does a transfer pricing study include?
A transfer pricing study is the documentation that rule 84 of the Income-tax Rules, 2026 requires every person with an international transaction to keep, built around a benchmarking analysis that shows each price is at arm's length. It replaces rule 10D of the Income-tax Rules, 1962 and follows the same thirteen headings. Our studies are organised as follows:
| Part of the study | What it contains | Rule 84(1) clause |
|---|---|---|
| Entity and group profile | Ownership structure, the multinational group, and the name, address, legal status and tax residence of each group company dealt with | (a), (b) |
| Business and industry | What the Indian company and its associated enterprises do, and the industry they operate in | (c) |
| Transaction details | Nature, terms, prices, quantity and value of each international transaction | (d) |
| Functional analysis | Functions performed, risks assumed and assets used by each party | (e) |
| Budgets and forecasts | Economic and market analyses, forecasts and budgets bearing on the transactions | (f) |
| Comparables and method | Uncontrolled transactions considered, the comparability analysis, the methods considered and the reasons the chosen method is the most appropriate | (g), (h), (i) |
| Working and adjustments | The actual computation of the arm's length price, comparable data, adjustments for differences, critical assumptions and any adjustment made to align prices | (j), (k), (l) |
| Anything else relevant | Any other information, including data about the associated enterprise | (m) |
Rule 84(5) expects the information to be backed by authentic documents — agreements, correspondence with the associated enterprise, published accounts, market studies and price publications. Rule 84(6) says the documentation should as far as possible be contemporaneous and must exist by the specified date, which section 173(d) of the Income-tax Act, 2025 fixes as one month before the return due date. Rule 84(7) lets a continuing transaction rely on earlier documentation unless its terms, assumptions or other pricing factors change significantly. Rule 84(8) requires the records to be kept for nine years from the end of the relevant tax year (the 1962 rule said eight years from the end of the assessment year, which ends on the same calendar date).
If a tax officer or the Commissioner (Appeals) asks for the documentation, section 171(2) gives you ten days from receipt of the notice, which can be extended by up to thirty days on application. That is why the study has to be finished before filing season, not written after a notice arrives. Our transfer pricing documentation template walks through the headings in more detail.
How is a transfer pricing benchmarking study done?
A benchmarking study picks the most appropriate method, finds comparable independent companies or transactions, and tests whether the Indian company's price or margin falls within the arm's length range set by rule 81. The steps:
- Characterise the Indian entity from the functional analysis — for example a low-risk service provider remunerated on cost, a limited-risk distributor, or a full-risk manufacturer.
- Select the method. Rule 80 requires the method best suited to the facts, having regard to the nature of the transaction, the functions and risks of the parties, the availability and reliability of data, the degree of comparability and the reliability of any adjustments and assumptions.
- Choose the tested party and profit level indicator — for a captive service centre usually the Indian entity and its operating profit on operating expense, which is also the measure rule 89(2) uses for the IT-services safe harbour.
- Search and screen comparables against the comparability factors in rule 79(2): the characteristics of the service or property, the functions, assets and risks, the contract terms, and market conditions including geographical location. That last factor is why Indian studies are normally built from Indian comparables.
- Use the right year's data. Rule 79(4) points to data for the financial year of the transaction; for the resale price, cost plus and transactional net margin methods, rule 79(5) allows the preceding year's data if current-year data is not available when the return is filed. Rule 81(3) then blends up to three years for each comparable as a weighted average.
- Build the range and test. With six or more entries, the range runs from the 35th to the 65th percentile (rule 81(6)). Inside the range, your price stands; outside it, the median is used.
The six methods, and when each tends to fit a foreign-owned subsidiary:
| Method (rule 79 / 78) | How it works | Typical subsidiary use |
|---|---|---|
| Comparable uncontrolled price (CUP) | Price in a comparable uncontrolled transaction, adjusted for differences | Interest on intercompany loans, commodity-type goods, royalties where comparable licences exist |
| Resale price method | Resale price less a normal gross margin and direct expenses | Distributors reselling the parent's products without significant value added |
| Cost plus method | Direct and indirect costs plus a normal gross mark-up | Contract manufacturing and some contract services |
| Profit split method | Combined profit split by relative contribution (contribution or residual approach) | Highly integrated operations where both sides contribute unique intangibles |
| Transactional net margin method (TNMM) | Net margin on costs, sales or assets compared with comparable companies | Captive IT, ITeS, KPO and R&D centres; GCCs; many distributors and manufacturers |
| Other method (rule 78) | Price charged or that would have been charged in a similar uncontrolled transaction | Unique transactions, valuations, quotations |
Where fewer than six comparables survive, rule 81(7) uses the arithmetical mean, and the actual price is accepted if the difference is within the tolerance notified by the Central Government under section 165(3)(a)(ii), which cannot exceed 3%. The latest notification in the series — No. 157/2025, S.O. 5053(E) of 6 November 2025, for assessment year 2025-26 (FY 2024-25) — set 1% for wholesale trading (purchase cost of finished goods at least 80% of total cost and average monthly closing inventory no more than 10% of sales) and 3% in all other cases. As at 26 September 2026 we have found no notification for FY 2025-26 (assessment year 2026-27), and none yet under section 165(3)(a)(ii) of the 2025 Act for tax year 2026-27; until one is issued, the band for those years is not known. There is more on building the dataset in our benchmarking guide and our entry on the arm's length range.
Worked example: a captive software centre
This example shows how the range, the median and the safe harbour interact for a typical cost-plus subsidiary. The figures are illustrative.
A US software company's Indian subsidiary develops code only for the parent and is paid cost plus 12%. In tax year 2026-27 its operating expense is ₹20 crore, so its revenue from the parent is ₹22.4 crore and its operating profit ₹2.4 crore — an operating margin of 12% on operating expense.
Benchmarking. The study finds eight comparable independent software service companies whose weighted-average margins on operating expense, in ascending order, are 10.2%, 11.8%, 13.5%, 14.1%, 15.0%, 16.4%, 18.9% and 21.3%. Applying rule 81(8):
- 35th percentile: 8 × 0.35 = 2.8, not a whole number, so the 3rd value — 13.5%.
- 65th percentile: 8 × 0.65 = 5.2, so the 6th value — 16.4%.
- Median: 8 × 0.5 = 4, a whole number, so the average of the 4th and 5th values — (14.1% + 15.0%) ÷ 2 = 14.55%.
Result. The subsidiary's 12% sits below the 13.5% start of the range, so the arm's length margin becomes the median, 14.55%. Arm's length operating profit is ₹20 crore × 14.55% = ₹2.91 crore, and the primary adjustment is ₹2.91 crore − ₹2.4 crore = ₹51 lakh of extra taxable income. At the 22% rate in section 200 of the Income-tax Act, 2025 (for a company that has opted for it) that is ₹11.22 lakh of tax before surcharge, cess and interest. Because the adjustment is below ₹1 crore, no secondary adjustment arises.
If the centre were bigger. At ₹50 crore of operating expense the same margin gap (14.55% − 12%) gives an adjustment of ₹1.275 crore. That crosses the ₹1 crore threshold in section 170, so if the adjustment is accepted the subsidiary has 90 days to bring ₹1.275 crore back from the parent, or it is treated as an advance carrying imputed interest, or the subsidiary can opt to pay additional income-tax at 18% under section 170(5) — ₹22.95 lakh at that rate — instead.
What would have avoided it. A year-end true-up invoice taking the margin to at least 13.5% would have put the price inside the range. Electing the IT-services safe harbour would have required at least 15.5% — higher than the range needs, but with no benchmarking fight and the election fixed for five years. That trade-off is the core of our advice for captive centres.
What are the safe harbour rules for tax year 2026-27?
From tax year 2026-27, rules 86 to 93 of the Income-tax Rules, 2026 let an eligible company have its declared transfer price accepted without benchmarking if it meets a prescribed margin or rate. They are made under section 167 of the Income-tax Act, 2025 (section 92CB of the Income-tax Act, 1961). The rates in rule 89(2) apply for a block of three tax years beginning with 2026-27 (rule 89(4)).
| Rule 89(2) category | Condition for acceptance | Typical subsidiary |
|---|---|---|
| Provision of information technology services (software development, ITeS, KPO, software-related contract R&D) | Operating profit at least 15.5% of operating expense; aggregate operating revenue from the transaction up to ₹2,000 crore | Captive development centres, GCCs, back-office and analytics centres |
| Contract R&D relating to generic pharmaceutical drugs | Operating profit at least 24% of operating expense; revenue up to ₹300 crore | Pharma R&D subsidiaries |
| Manufacture and export of core auto components | Operating profit at least 12% of operating expense | Auto component makers supplying the group |
| Manufacture and export of non-core auto components | Operating profit at least 8.5% of operating expense | As above |
| Provision of data centre services | Operating profit at least 15% of operating expense (new category) | Group data centre operations in India |
| Receipt of low value-adding intra-group services | Aggregate for the year, including a mark-up of not more than 5%, up to ₹10 crore; cost pooling, exclusions and allocation keys certified by an accountant | Subsidiaries paying the parent routine management or shared-service charges |
| Intra-group loans in rupees | SBI one-year MCLR on 1 April plus 175 to 625 basis points by credit rating (425 basis points unrated, if aggregate rupee lending to AEs is up to ₹100 crore) | Indian company lending to a group company |
| Intra-group loans in foreign currency | Currency reference rate on 30 September plus 150 to 600 basis points by rating and size | As above |
| Corporate guarantees | Commission of at least 1% a year on the amount guaranteed (eligibility conditions in rule 88(c)) | Indian company guaranteeing a group company's borrowing |
How it works in practice:
- IT services: the option is exercised in Form No. 49 to the Director General of Income-tax (Systems) by the return due date for the first year, and runs for five consecutive tax years (rule 91(1)). The ₹2,000 crore test is applied only in the first year (rule 91(2)). Withdrawal is not allowed after six months from the end of the first tax year, and a company that withdraws cannot opt in again until the five years are over.
- Other categories: Form No. 49 goes to the Assessing Officer year by year under rule 90, by the return due date.
- Not available for transactions with an associated enterprise in a jurisdiction notified under section 176 or in a no-tax or low-tax territory (rule 92).
- No MAP: once the price is accepted under safe harbour, the treaty mutual agreement procedure cannot be invoked (rule 93). The parent's own tax authority is not bound by India's margin.
- Documentation stays: rule 89(6) keeps the section 171 documentation and section 172 report obligations.
For FY 2025-26 and earlier years the old rule 10TD rates still govern: 17% or 18% for software development and ITeS depending on value, a 24%/21%/18% KPO scale and a ₹300 crore ceiling (Rule 10TD of the Income-tax Rules, 1962, as amended by Notification 21/2025). See our safe harbour rules entry for the full comparison.
What transfer pricing profile fits your Indian subsidiary?
How your subsidiary is characterised decides the method, the comparables and the margin you should expect to defend. Margins are quoted below only where the Income-tax Rules, 2026 prescribe them; for other profiles the right margin comes from a benchmarking study, not a rule of thumb.
| Subsidiary profile | Usual transactions | Methods usually considered | Safe harbour under rule 89(2) | What tax officers look at |
|---|---|---|---|---|
| Captive software / IT services centre or GCC | Services billed to parent at cost plus | TNMM (operating profit / operating expense) | Yes — 15.5% on operating expense, revenue up to ₹2,000 crore | Whether the entity is truly low-risk; cost base completeness (stock options, seconded staff costs borne abroad) |
| ITeS / KPO / analytics centre | Back-office, finance, analytics services to group | TNMM | Yes — same IT-services row (KPO no longer has its own rate) | Comparable selection when the work is higher-end |
| Engineering or software R&D centre | Contract R&D for the parent | TNMM, sometimes profit split if the centre owns valuable intangibles | Software-related R&D: IT-services row; generic-pharma R&D: 24% | Who owns and controls the intangibles created |
| Distributor of the parent's products | Purchase of finished goods for resale | Resale price method or TNMM (operating profit / sales) | None | Marketing spend in India; the narrower wholesale-trading tolerance (1% in the latest notification) where fewer than six comparables are used |
| Contract or auto-component manufacturer | Sale of manufactured goods to group; purchase of inputs | Cost plus or TNMM | Core auto components 12%, non-core 8.5% | Capacity utilisation and start-up losses |
| Subsidiary paying management / group-service fees | Payments for group services | TNMM or CUP on the cost base, plus a benefit test | Low value-adding services up to ₹10 crore with mark-up ≤ 5% | Evidence that the services were needed and received; duplication and shareholder activities |
| Licensee of parent IP or brand | Royalty or brand fee | CUP where comparable licences exist; otherwise TNMM or profit split | None | Benefit to the Indian business; withholding on the royalty |
| Group-financed subsidiary | Loans or guarantees from parent | CUP on interest; credit-rating analysis | Rates apply to loans and guarantees given by the Indian company | Interest rate and the section 177 30%-of-EBITDA cap |
More on the GCC model in GCC tax structure and cost-plus transfer pricing, and on US-parent structures in transfer pricing for US-India subsidiaries.
What is Form 48 (formerly Form 3CEB) and when is it due?
Form No. 48 is the chartered accountant's report on your international transactions, required under section 172 of the Income-tax Act, 2025 (section 92E of the Income-tax Act, 1961), and it is due one month before the return due date. Rule 85(1) of the Income-tax Rules, 2026 prescribes the form for every person who entered into an international or specified domestic transaction during a tax year; rule 85(2) sets the deadline by reference to the return due date in section 263(1)(c) (dates in the table below). The accountant must be one defined in section 515(3)(b).
The form number for FY 2025-26 filings. For tax year 2026-27 onwards the report is Form No. 48. For FY 2025-26 and earlier years it was Form 3CEB under rule 10E of the Income-tax Rules, 1962. Which form a report filed after 1 April 2026 for FY 2025-26 must use is not settled by the notified rules, because the Income-tax Rules, 2026 contain no transition provision. Check the form actually enabled on the e-filing portal before filing — we do this for every client. Our Form 3CEB / Form 48 entry tracks the position.
Specified domestic transactions — certain transactions between related Indian parties — only come within the rules where they exceed ₹20 crore in aggregate in the tax year (section 164). Most foreign-owned subsidiaries report only international transactions.
Transfer pricing due dates for the current tax year
For tax year 2026-27 (1 April 2026 to 31 March 2027), the key transfer pricing dates for a company with international transactions fall in October and November 2027.
| Filing | Form | Due date for tax year 2026-27 | Source |
|---|---|---|---|
| Transfer pricing documentation must exist | — | By 31 October 2027 (the specified date) | Rule 84(6); section 173(d) |
| Accountant's report | Form No. 48 | 31 October 2027 | Rule 85(2) |
| Income-tax return | Return under section 263 | 30 November 2027 | Section 263(1)(c) |
| Safe harbour option | Form No. 49 | 30 November 2027 (return due date) | Rules 90 and 91(3) |
| Master file (Part A for all constituent entities; full form above thresholds) | Form No. 56 | 30 November 2027 (return due date) | Rule 123(2), (3) |
| Designation of one Indian entity to file the master file | Form No. 57 | 30 days before the Form No. 56 due date | Rule 123(4) |
| CbCR intimation by Indian subsidiary of a foreign-parented group above ₹6,400 crore | Form No. 58 | Two months before the CbCR due date (twelve months from the end of the group's reporting accounting year) | Section 511(2); rule 124(2) |
| APA annual compliance report | Form No. 52 | 30 days after the return due date, or 90 days after signing, whichever is later | Rule 113(3) |
FY 2025-26 (being filed now). Under the Income-tax Act, 1961, the report is due by the 'specified date' in section 92F(iv) — one month before the section 139(1) return due date — which gives 31 October 2026 for the report and 30 November 2026 for the return of a company that must file one. Watch for any CBDT extension. The master file for FY 2025-26 is due with the return. For a group whose accounting year ended 31 December 2025, the CbCR is due by 31 December 2026 and an Indian subsidiary's intimation two months earlier. See our deadline guide for the full calendar.
Master file and country-by-country reporting for Indian subsidiaries
Every Indian subsidiary of a multinational group files Part A of the master file; the full master file and the CbCR apply only above set thresholds.
- Master file — Form No. 56 (formerly Form 3CEAA), rule 123. Required when the group's consolidated revenue for the accounting year exceeds ₹500 crore and the Indian entity's international transactions exceed ₹50 crore, or ₹10 crore for purchase, sale, transfer, lease or use of intangible property. Part A is required from every constituent entity even below these thresholds (rule 123(3)). Records are kept for nine years from the end of the tax year (rule 123(5)).
- Country-by-country report — section 511 of the Income-tax Act, 2025 (section 286 of the Income-tax Act, 1961). Applies only where the group's consolidated revenue for the preceding accounting year exceeds ₹6,400 crore (rule 124(7)). An Indian parent or alternate reporting entity files Form No. 59 within twelve months of the year end. An Indian subsidiary of a foreign-parented group files the Form No. 58 intimation naming the parent or alternate reporting entity and its country; it must file the CbCR itself only in the cases in section 511(4) — the parent is not obliged to file one at home, the country has no exchange agreement with India, or there is a systemic failure.
What are the penalties for transfer pricing failures?
Transfer pricing defaults are among the most expensive in Indian tax law because the documentation and reporting penalties are charged at 2% of the transaction value, whatever the tax at stake. The current provisions of the Income-tax Act, 2025 (with the Finance Act, 2026 changes in force from 1 April 2026):
| Default | Consequence | Provision |
|---|---|---|
| Not keeping the prescribed documentation, not reporting a transaction, or keeping/furnishing incorrect information | Penalty of 2% of the value of each international transaction | Section 442(1) (section 271AA of the 1961 Act) |
| Not furnishing the master file information | Penalty of ₹5,00,000 | Section 442(2) |
| Not producing documentation within the time allowed on a section 171(2) notice | Penalty of 2% of the value of the transaction, for each failure | Section 457 (section 271G of the 1961 Act) |
| Accountant's report not furnished on time | Fee of ₹50,000 for a delay of up to one month; ₹1,00,000 after that | Section 428(d), as substituted by the Finance Act, 2026 (for years governed by the 1961 Act, the corresponding provision is the ₹1,00,000 penalty in section 271BA) |
| Under-reported income from a transfer pricing adjustment | 50% of the tax on the under-reported income — but not where documentation was kept, the transaction declared and all material facts disclosed | Section 439(9) and 439(8)(d) (section 270A of the 1961 Act) |
| Failure to report an international transaction (misreporting) | 200% of the tax on the under-reported income | Section 439(10) and (11)(f) |
| CbCR not furnished by a reporting entity | ₹5,000 a day for the first month, ₹15,000 a day after; ₹50,000 a day after a penalty order | Section 459 |
Under section 470, the penalties in sections 442, 457 and 459 are not imposed if you prove reasonable cause for the failure. The section 428(d) amount is a fee, not a penalty. Our seven mistakes that trigger a TP audit covers the patterns we see most.
What happens in a transfer pricing assessment?
The Assessing Officer can refer your international transactions to a Transfer Pricing Officer (TPO), who determines the arm's length price by written order after hearing your evidence; the Assessing Officer then computes income in line with it.
- Reference: under section 166(1), with the previous approval of the Principal Commissioner or Commissioner. The TPO can also take up transactions not referred, and transactions you left out of the report (section 166(5)).
- Timing of the TPO order: section 166(7), as substituted by the Finance Act, 2026, requires the order before one month prior to the month in which the assessment limitation expires — for a limitation ending 31 March, by 31 January.
- Dispute Resolution Panel: as a foreign-owned company with a TPO variation you are an eligible assessee under section 275. You receive a draft order and have 30 days to accept it or object to the Dispute Resolution Panel and the Assessing Officer.
- Multi-year option: after a TPO reference for one year, section 166(9) and rule 82 let you opt, in Form No. 46 with an accountant's certificate in Form No. 47, to have the same arm's length price applied to similar transactions in the next two tax years. The form is filed between the end of the third tax year and 30 June after it, and the TPO rules on validity within a month.
- Treaty relief: an Indian adjustment does not automatically reduce the parent's taxable income abroad; the mutual agreement procedure under the DTAA is the route to a corresponding adjustment.
For negotiation tactics at each stage, see how to negotiate a transfer pricing assessment.
How does a secondary adjustment work?
A secondary adjustment makes the cash follow the corrected price: if a primary adjustment of ₹1 crore or more sticks, the excess left abroad must come back to India within 90 days or be treated as a loan to the associated enterprise. Section 170 of the Income-tax Act, 2025 (section 92CE of the Income-tax Act, 1961) applies where the primary adjustment is made by you in the return, accepted from an Assessing Officer's or appellate order, set by an APA, made under safe harbour, or results from MAP.
Rule 83 of the Income-tax Rules, 2026 starts the 90 days from the return due date (self-made adjustments, safe harbour, and APAs signed before the return is due), the date of the order (accepted assessment adjustments), the end of the month the APA is signed (later APAs), or the order giving effect to a MAP resolution. Unrepatriated money attracts imputed interest at SBI's one-year MCLR on 1 April of the tax year plus 325 basis points (rupee transactions) or the currency's reference rate on 30 September plus 300 basis points (foreign-currency transactions). Alternatively, section 170(5) lets you pay additional income-tax of 18% on the unrepatriated amount, which closes the matter; no credit or deduction is then allowed for that tax.
When is an advance pricing agreement worth it?
An APA fixes the arm's length price, or the method for setting it, in advance for up to five tax years, and can roll back to up to four earlier years — worth it when the annual exposure is large and recurring. The framework is sections 168 and 169 of the Income-tax Act, 2025 (sections 92CC and 92CD of the Income-tax Act, 1961) and rules 103 to 120 and 122 of the Income-tax Rules, 2026 (rule 121 deals with MAP).
- Who can apply: anyone who has undertaken, or is contemplating, an international transaction (rule 104).
- How: a pre-filing consultation can be requested in Form No. 50 (rule 105; it binds neither side), then the application is made in Form No. 51 — to the Principal Chief Commissioner (International Taxation) for a unilateral APA, or to India's competent authority for a bilateral or multilateral APA (rule 106(2)). For continuing transactions it must be filed before the first day of the first tax year to be covered (rule 106(3)).
- Fee: ₹20 lakh flat (rule 106), not refunded on withdrawal (rule 107(2)); ₹5 lakh more for rollback (rule 111(5)). The ₹10/15/20 lakh scale under rule 10-I of the 1962 Rules no longer applies, so smaller applicants now pay more.
- Rollback conditions (rule 111): same transaction, returns and reports for the rollback years filed on time, rollback requested for every year the transaction occurred, and no rollback where the Tribunal has already decided the issue or where it would reduce the returned income.
- After signing: a modified return within three months of the end of the month of signing (section 169(1)), and an annual compliance report in Form No. 52 each year (rule 113). Renewal is a fresh application in Form No. 54 (rule 119).
The programme is busy: CBDT reported a record 219 APAs signed in FY 2025-26, including 84 bilateral APAs, taking the total since inception to 1,034 (750 unilateral and 284 bilateral), with bilateral APAs concluded that year with the US, Finland, the UK, Singapore, Japan, South Korea, Australia, Denmark, Sweden, France, Indonesia, Ireland and New Zealand (PIB, 31 March 2026). Read more in how APAs remove transfer pricing risk and our APA rollback entry.
Notes for parents in the US, UK, Singapore, UAE, Japan, Canada and Australia
Wherever the parent sits, India applies its own rules to the Indian side — the parent's documentation does not replace an Indian study, and India's safe harbour margin does not bind the parent's tax authority.
- US, UK, Singapore, Japan, Australia: each is among the 13 treaty partners with which bilateral APAs were concluded in FY 2025-26, so a bilateral APA is a realistic option for large recurring flows. Read the DTAA guide for treaty rates on fees and royalties paid from India.
- UAE and Canada: neither appears in that FY 2025-26 bilateral APA list. That does not by itself rule out a bilateral APA — it depends on the treaty's mutual agreement article and the other authority — so compare a bilateral APA with a unilateral APA or benchmarking with MAP in reserve, and check the treaty's associated-enterprises article before relying on a corresponding adjustment.
- All parents: keep the Indian margin, the parent's cost allocation and the intercompany agreement consistent. Where the parent bears costs for the Indian team — stock-based compensation, seconded employees, software licences — those costs affect the Indian cost base that the margin is measured on.
- Payments out of India for services, royalties or interest also involve withholding tax and remittance forms: Form 145 (formerly Form 15CA) and, where required, the accountant's certificate in Form 146. The transfer pricing study supports the amount, not the withholding rate.
Country-specific guides: US, Germany, Japan and Canada.
Common transfer pricing mistakes we fix
- Using last year's safe harbour rates or APA fee. From tax year 2026-27 the IT-services rate is 15.5% up to ₹2,000 crore; the 17%/18% rates belong to FY 2025-26 and earlier. The APA fee is now a flat ₹20 lakh.
- Missing costs the parent pays. If the parent pays for stock options, licences or seconded staff used by the Indian team, the Indian cost base is understated and so is the margin the tax officer will compute.
- No evidence behind management fees. A cost allocation without proof of services received is hard to defend as arm's length.
- Leaving a transaction out of the report. The TPO can still examine it (section 166(5)), and it is misreporting under section 439(11)(f).
If you are setting up in India now, we can build the pricing model into the subsidiary set-up so the first year is compliant from day one. For broader structuring questions, see our tax advisory service and how Indian rules compare with the OECD guidelines.
Need help with this?
Schedule a free consultation with our team. We will walk you through the process, timeline, and costs specific to your situation.
This article is for general information only and is not legal, tax, or investment advice. Confirm current rules with the relevant authority or a qualified professional — or ask our team. See our full disclaimer.