Comply & operate · Transfer pricing
Transfer Pricing in India for Foreign-Owned Subsidiaries
Every rupee that moves between an Indian subsidiary and its foreign group must be priced at arm's length, documented and certified each year. Here is what that means under the Income-tax Act, 2025, and how to keep it clean from the first invoice.
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Regi Tom Antony's view
Set the intra-group pricing model before the first invoice, not at year-end. What the Indian company charges the parent, what it pays for, and the margin it earns should be in a written agreement from day one. The transfer pricing report then documents a policy rather than defends a guess.
What is transfer pricing, and why does it apply to your Indian subsidiary?
Transfer pricing is the pricing of transactions between related companies in a group. Because a parent can shift profit by pricing intra-group services, goods or loans high or low, India requires these transactions to be priced as if the parties were independent, at an arm's length price. The rules apply to international transactions between associated enterprises, which covers every Indian subsidiary or joint venture dealing with its foreign parent or sister companies.
From 1 April 2026 the rules sit in sections 161 to 173 of the Income-tax Act, 2025, which replaced sections 92 to 92F of the 1961 Act. International transactions are defined in section 163 (formerly section 92B), the methods are in section 165 (formerly section 92C), and the accountant's report is required by section 172 (formerly section 92E). The concepts are the same; the section and form numbers have changed.
Which intra-group transactions are covered?
| Transaction | Typical example | What to get right |
|---|---|---|
| Services to the parent | Software development, IT or back-office support, R&D | A cost-plus margin consistent with comparables; agreed cost base |
| Charges from the parent | Management fees, shared services, licences | Evidence the service was received and benefited the Indian entity |
| Royalties and technical fees | Use of brand, technology or know-how | Rate support, and withholding tax on the remittance |
| Goods | Import of finished goods or components from group companies | Margins in line with independent distributors or manufacturers |
| Finance | Intra-group loans, guarantees, cash pooling | Interest and fee at arm's length; FEMA rules for external borrowing |
| Reimbursements | Expatriate costs, travel, software subscriptions | Documentary support and consistent treatment |
How is the arm's length price determined?
Section 165 (formerly section 92C) sets out the methods: the comparable uncontrolled price method, resale price method, cost plus method, profit split method, transactional net margin method and other prescribed methods. For a captive service centre or a low-risk distributor, the transactional net margin method is the most common, comparing the Indian entity's operating margin with a set of comparable independent companies.
The choice of method follows a functional analysis: what the Indian entity does, which assets it uses, and which risks it bears. A subsidiary that develops software under the parent's direction and bears little market risk earns a routine cost-plus return; an entity that owns intangibles or takes market risk is benchmarked differently. Getting the characterisation right at the start matters more than the arithmetic later.
How do you manage transfer pricing through the year?
- 1
Map the intra-group transactions
List every transaction with the parent and group companies: services, charges, royalties, goods, loans, guarantees and reimbursements.
- 2
Analyse functions, assets and risks
Document what the Indian entity does, the assets it uses and the risks it bears, which decide how it should be remunerated.
- 3
Choose the method and benchmark
Select the most appropriate method under section 165 (formerly section 92C) and benchmark against comparable independent companies or transactions.
- 4
Price and invoice through the year
Set intercompany agreements and pricing in advance and true up before year-end so the books reflect an arm's length result.
- 5
Document and certify
Maintain the transfer pricing documentation and have a chartered accountant certify the accountant's report (Form 48, formerly Form 3CEB) before the due date.
What is Form 48, and when is it due?
Form 48 is the accountant's report on international transactions and specified domestic transactions under section 172 of the Income-tax Act, 2025 (formerly section 92E). It replaces Form 3CEB from tax year 2026-27 and must be certified by a chartered accountant. The report is due one month before the due date of the income tax return; for a company that must file it, that is normally 31 October, subject to any extension.
For the financial year 2025-26, the last year assessed under the 1961 Act, the report is still Form 3CEB. Groups above the prescribed thresholds also have master file and country-by-country reporting obligations, which are coordinated with the parent's global filings.
What are the risks of getting it wrong?
If the price is not at arm's length, the assessing officer or transfer pricing officer can adjust the Indian entity's income upward, with tax and interest on the adjustment. Penalties can apply for failing to maintain or furnish documentation, for not obtaining the accountant's report, and for under-reporting income. A secondary adjustment may also apply where the excess money is not brought back to India. Disputes take years to resolve, so prevention is far cheaper than defence.
Transfer pricing also interacts with other filings: withholding tax on royalties and fees, the FLA return, the FC-GPR filings on share capital, and profit repatriation by dividend or buyback. See withholding tax on foreign remittances and the annual compliance calendar.
Frequently asked questions
Does transfer pricing apply to an Indian subsidiary of a foreign company?
What is Form 48?
When is the transfer pricing report due?
What intra-group transactions need transfer pricing?
Which method is used to benchmark a captive service subsidiary?
What happens if transfer pricing documentation is not maintained?
Sources: Income-tax Act, 2025, sections 161 to 173 (formerly sections 92 to 92F, Income-tax Act, 1961); Income-tax Rules, 2026, Form 48 (formerly Form 3CEB). Last reviewed: November 2026 · Reviewed by CA Regi Tom Antony, Regi Tom Antony & Associates. General guidance; transfer pricing depends on the facts of each transaction.
Setting up intra-group pricing for your India subsidiary?
We map the transactions, benchmark them, draft intercompany agreements and certify the accountant's report each year.