INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN APPLIED SCIENCE (IJRIAS)
ISSN No. 2454-6194 | DOI: 10.51584/IJRIAS |Volume X Issue IX September 2025
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India’s Transfer Pricing Framework: Evolution, Challenges, and
Future Directions
Mamta Bhawanishanker Khandelwal
G.H. Raisoni University, Saikheda, India
DOI: https://doi.org/10.51584/IJRIAS.2025.100900005
Received: 09 Sep 2025; Accepted: 19 Sep 2025; Published: 10 October 2025
ABSTRACT
India’s transfer pricing regime, governed by Chapter X of the Income Tax Act, 1961, is a robust framework
aligned with OECD guidelines, designed to curb profit shifting and ensure tax base integrity. This white paper
provides a comprehensive analysis of the regime’s statutory provisions, methodologies, documentation
requirements, and dispute resolution mechanisms. It highlights recent developments, including a record 125
Advance Pricing Agreements (APAs) in FY 2023–24, amendments to Safe Harbour Rules, and the innovative
Block Transfer Pricing Assessment Scheme introduced in the Finance Act, 2025. Through a SWOT analysis,
comparative perspective, case studies, and visual aids (tables, charts, and flowcharts), the paper evaluates
strengths like global alignment and challenges such as high compliance costs. Recommendations include
digital transformation, simplified thresholds for SMEs, and enhanced global collaboration. This study
contributes to tax scholarship by offering insights into India’s role in global tax governance.
Preface
Transfer pricing has emerged as a pivotal aspect of global taxation, ensuring fairness in cross-border and
domestic transactions while safeguarding national tax bases. In India, the transfer pricing regime, established
in 2001, has evolved into a sophisticated framework aligned with international standards, yet tailored to
address unique domestic challenges, such as a significant informal economy and tax arbitrage. This white
paper synthesizes India’s transfer pricing regulations, recent innovations, and their implications for
multinational enterprises (MNEs) and policymakers. By integrating statutory analysis, empirical data, case
studies, and visual aids, it aims to contribute to advanced tax scholarship and inform global tax governance
debates. The paper is intended for academics, tax practitioners, and policymakers seeking to understand India’s
role in shaping equitable taxation in an era of digital economies and BEPS 2.0.
Keywords: Transfer Pricing, India, Arm’s Length Price, Advance Pricing Agreements, Safe Harbour Rules,
Block Assessment Scheme, OECD Guidelines, BEPS, Dispute Resolution, Taxation
INTRODUCTION
Transfer pricing regulates the pricing of transactions between associated enterprises (AEs) to ensure they
reflect market-based prices, preventing tax base erosion. In India, transfer pricing rules, introduced in 2001
under Chapter X (Sections 92–92F) of the Income Tax Act, 1961, align with the OECD’s arm’s length
principle while addressing domestic priorities like tax arbitrage in an informal economy.[^1] The regime has
evolved through legislative amendments, judicial pronouncements, and innovations like APAs and the Block
Assessment Scheme.
[^1]: India’s informal economy, estimated at 50% of GDP, complicates comparability analysis in transfer
pricing (Grant Thornton, 2023).
This white paper aims to:
Analyze India’s transfer pricing framework, focusing on statutory provisions, methods, and dispute
resolution.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN APPLIED SCIENCE (IJRIAS)
ISSN No. 2454-6194 | DOI: 10.51584/IJRIAS |Volume X Issue IX September 2025
www.rsisinternational.org
Page 59
Highlight recent developments, including APAs, Safe Harbour Rules, and the 2025 Block Assessment
Scheme.
Critically evaluate the regime’s efficacy using a SWOT analysis, comparative lens, and case studies.
Propose reforms to enhance compliance and global alignment.
The study is relevant to policymakers, practitioners, and academics, offering insights into India’s evolving role
in international tax governance amid BEPS 2.0 and digital economy challenges.
Key Insight: India’s informal economy, contributing nearly 50% of GDP, poses unique challenges in
identifying reliable comparables, necessitating tailored benchmarking approaches.
Overview of India’s Transfer Pricing Regime
Statutory Framework
India’s transfer pricing regulations are codified in Sections 92–92F of the Income Tax Act, 1961, introduced
via the Finance Act, 2001. Key provisions are summarized below.
Table 1: Key Statutory Provisions of India’s Transfer Pricing Regime
Section
Description
Key Features
92
Computation of Income
Mandates ALP for international transactions; allows AO to
recompute if documentation is inadequate.
92A
Associated Enterprise
Defines AEs based on 26% voting power or significant influence
(e.g., board control, intangibles).
92B
International
Transaction
Covers sales, services, intangibles, and PEs; expanded by Finance
Act, 2012.
92BA
Specified Domestic
Transaction
Applies to transactions > INR 20 crore under tax holiday regimes
(e.g., Section 10AA).
92C
ALP Computation
Prescribes six methods (CUP, RPM, CPM, PSM, TNMM, Other);
allows 3% tolerance range.
92CC–92CD
Advance Pricing
Agreements
Authorizes APAs for up to 5 years with rollback for 4 prior years.
92CE
Secondary Adjustment
Mandates repatriation of excess income within 90 days or imposes
18% tax.
92D–92E
Documentation &
Reporting
Requires contemporaneous documentation and Form 3CEB filing by
October 31.
Legislative Intent: These provisions aim to curb profit shifting by MNEs and domestic entities exploiting tax
incentives, aligning with OECD standards.[^2]
[^2]: OECD Transfer Pricing Guidelines (2022) emphasize the arm’s length principle as the global standard.
Transfer Pricing Methods
Section 92C, read with Rule 10B, prescribes six methods for ALP determination, as illustrated below.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN APPLIED SCIENCE (IJRIAS)
ISSN No. 2454-6194 | DOI: 10.51584/IJRIAS |Volume X Issue IX September 2025
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Table 2: Comparative Analysis of Transfer Pricing Methods
Method
Advantages
Challenges
CUP
High reliability; direct
market comparison
Difficult to find comparable
uncontrolled transactions
RPM
Simple when resale prices
available
Inapplicable for significant
value-added activities
CPM
Reflects supplier costs
Complex cost base
determination
PSM
Equitable profit allocation
Subjective contribution analysis
TNMM
Flexible; uses public data
Profit indicator selection critical
Other
Flexible for bespoke models
Lack of clear guidelines
Practical Insight: TNMM is widely used (e.g., 80% of APAs in FY 2023–24) due to its adaptability and data
availability.[^3]
Documentation Requirements
Rule 10D mandates a three-tier documentation framework per BEPS Action 13, as shown below.
Table 3: Three-Tier Documentation Requirements
Tier
Description
Threshold
Filing Deadline
Form
Local File
Transaction-specific details,
FAR analysis
Intl: > INR 1 crore; SDT:
> INR 20 crore
October 31
3CEB
Master File
Group-wide overview,
intangibles, financing
MNE turnover > INR 5
billion
November 30
3CEAA/3CEAB
CbCR
Global income, tax
allocation
MNE revenue > INR 64
billion
Within 12 months
3CEAC–3CEAE
[^3]: CBDT Annual Report, FY 2023–24, notes TNMM’s dominance in APA methodologies.
Challenges: High compliance costs (2–5% of MNE budgets) and data scarcity in India’s emerging market
context increase the burden on MNEs.[^4]
Dispute Resolution
India’s multi-tiered dispute resolution includes:
MAP: Resolves double taxation under DTAAs (24-month target).
DRP: Handles adjustments for foreign companies (Section 144C).
ITAT: Final fact-finding authority.
APAs: Proactive certainty mechanism.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN APPLIED SCIENCE (IJRIAS)
ISSN No. 2454-6194 | DOI: 10.51584/IJRIAS |Volume X Issue IX September 2025
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Penalties: Non-compliance attracts penalties (e.g., 2% of transaction value under Section 271AA, INR
100,000 for Form 3CEB failure).
Case Study: SAP Labs India Pvt. Ltd. v. Income Tax Officer (Supreme Court, 2023) clarified the treatment of
marketing intangibles, emphasizing the need for consistent judicial guidance to reduce uncertainty.
Recent Developments
Advance Pricing Agreements
In FY 2023–24, the CBDT signed 125 APAs (86 unilateral, 39 bilateral), covering 224 transactions—a record
high.
Insight: APAs reduce litigation, with 420 APA years and 56 rollback years resolved in FY 2023–24.[^5]
Safe Harbour Rules
The 2025 amendment expanded Safe Harbour Rules, increasing the threshold to INR 300 crore and adding
lithium-ion batteries.
Table 4: Safe Harbour Margins (AY 2022–23)
Transaction
Threshold
Margin Requirement
Software/ITES
≤ INR 1 bn
≥ 17% operating margin
KPO
≤ INR 2 bn
≥ 18–24% (based on employee cost)
Intra-group Loan (INR)
≤ INR 1 bn
425 bps over SBI MCLR
Corporate Guarantee
—
≥ 1% p.a. commission
Auto Components
—
≥ 12% (core); ≥ 8.5% (non-core)
[^4]: Grant Thornton (2023) estimates documentation costs at 2–5% of MNE compliance budgets.
[^5]: CBDT Press Release, April 2024, highlights APA milestones.
Impact: By 2017, 200 taxpayers adopted safe harbours, but conservative margins limit uptake.[^6]
Policy Note: Conservative safe harbour margins discourage adoption, particularly for SMEs, suggesting a need
for industry-aligned thresholds.
Block Transfer Pricing Assessment Scheme
Introduced in the Finance Act, 2025, this scheme enables a three-year block assessment from April 1, 2026.
Features:
Lead year ALP methodology applies to two subsequent years if transactions are consistent.
TPO assessment for FY 2022–23 due by January 31, 2026.
Income Tax Bill, 2025
The bill retains core provisions, clarifies terms (e.g., “tax year”), and codifies block assessments, effective
April 1, 2026.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN APPLIED SCIENCE (IJRIAS)
ISSN No. 2454-6194 | DOI: 10.51584/IJRIAS |Volume X Issue IX September 2025
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Critical Analysis
SWOT Analysis
Table 5: SWOT Analysis of India’s Transfer Pricing Regime
Aspect
Description
Strengths
Robust legislation, OECD alignment, APA success
Weaknesses
High compliance costs, litigation backlog, limited TPO expertise
Opportunities
Digital tools, BEPS Pillar Two, block assessment efficiency
Threats
Litigation delays, global competition, digital economy challenges
Challenges
Compliance Costs: SMEs face annual costs of INR 1–5 million, disproportionate to their scale.[^7]
Litigation: ITAT appeals average 2–3 years, delaying resolutions.
Informal Economy: 50% of GDP complicates comparability.
Judicial Uncertainty: Conflicting rulings on marketing intangibles and intra-group services (e.g.,
Morgan Stanley & Co. v. Director of Income Tax, 2007) create ambiguity.
Key Insight: India’s high litigation volume, with thousands of unresolved TP disputes, underscores the need
for faster dispute resolution and clearer judicial precedents.
[^6]: Taxsutra (2018) notes limited adoption due to market misalignment.
[^7]: Cleartax.in (2024) estimates SME compliance costs.
Opportunities
Digital Tools: AI and blockchain can streamline audits.
Block Assessments: Offer a scalable global model.
BEPS 2.0: Enhances tax equity.
Case Study: Morgan Stanley & Co. v. Director of Income Tax (2007) highlighted India’s strict approach to
intra-group services, contrasting with more flexible OECD peers like the US, suggesting a need for nuanced
guidelines.
Comparative Perspective
Table 6: Comparative Analysis with Key Jurisdictions
Jurisdiction
Strength
Weakness
Lesson for India
USA
Flexible “best method” rule
Less prescriptive documentation
Simplify SME requirements
EU
Robust arbitration under
EU Convention
Complex coordination
Adopt arbitration in DTAAs
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN APPLIED SCIENCE (IJRIAS)
ISSN No. 2454-6194 | DOI: 10.51584/IJRIAS |Volume X Issue IX September 2025
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China
Strict enforcement on
intangibles
Limited flexibility
Develop digital transaction
guidelines
Key Insight: India’s structured documentation surpasses the US but lags in arbitration compared to the EU,
highlighting the potential for adopting arbitration mechanisms.[^8]
Future Directions
1. Digital Transformation: Implement AI-driven audits and blockchain for transparent documentation.
2. Capacity Building: Train 500+ TPOs by 2027 to handle complex domains like digital transactions.
3. Simplified Thresholds: Introduce tiered documentation for SMEs (< INR 50 crore).
4. Global Collaboration: Lead OECD/G20 discussions on digital taxation.
5. Export Block Assessments: Promote the scheme as a model for emerging economies.
6. Stakeholder Engagement: Refine safe harbour margins via industry consultation.
Policy Note: Exporting the Block Assessment Scheme to other emerging economies could position India as a
leader in innovative tax governance.
[^8]: OECD BEPS Action 14 (2022) recommends arbitration for effective dispute resolution.
CONCLUSION
India’s transfer pricing regime is a sophisticated, OECD-aligned framework that balances global and domestic
priorities. Innovations like APAs, Safe Harbour Rules, and the Block Assessment Scheme enhance tax
certainty. However, high compliance costs, litigation delays, and capacity constraints require reform. By
adopting digital tools, simplifying SME requirements, and deepening global collaboration, India can solidify
its leadership in transfer pricing governance, fostering a fair tax environment.
REFERENCES
1. Income Tax Act, 1961, Chapter X (Sections 92–92F).
2. Income Tax Rules, 1962, Rules 10B, 10D, 10F–10T.
3. Finance Act, 2001, 2012, 2015, 2017, 2025.
4. CBDT Notification No. 116/2024, October 18, 2024.
5. OECD Transfer Pricing Guidelines, 2022.
6. OECD BEPS Action Plan, Actions 13 & 14.
7. SAP Labs India Pvt. Ltd. v. Income Tax Officer, Supreme Court, 2023.
8. Morgan Stanley & Co. v. Director of Income Tax, Supreme Court, 2007.
9. Grant Thornton. (2023). India Transfer Pricing Guide.
10. Taxsutra, Indiankanoon.org, Cleartax.in.