Domestic Transfer Pricing — Section 92BA | Savlana Init

Transfer Pricing · Domestic Transactions

Domestic Transfer Pricing — Section 92BA. The Rules Apply Here Too.

Transactions between related Indian parties that shift profits into tax-favoured entities are covered by Section 92BA. The arm's length standard, the methods and Form 3CEB all apply.

Section 92BA applies the arm's length standard to certain transactions between domestic related parties, where the potential for tax arbitrage exists within India itself. The provision covers transactions with a person who is regarded as an associated enterprise in terms of Section 92A, and where at least one of them enjoys a specified tax benefit — a deduction under Chapter VI-A or Section 10AA, a profit-linked deduction under Chapter VI-A, or an arrangement where payments are made to related parties whose income is chargeable at rates lower than the general rate. The rationale mirrors international transfer pricing: shifting profits from a fully taxed entity to one enjoying a tax holiday or concessional rate distorts the computation in a way unrelated parties would not produce.

The transactions covered by Section 92BA include any expenditure in respect of which a payment is required to be made or has been made to the specified person — effectively all payments between the two related parties that affect the taxable income of either. This is broader than many taxpayers expect, because it includes intra-group services, shared costs, royalties, loans, guarantees and property arrangements, not merely the transfer of tangible goods. The provision was amended in 2017 to remove payments by the entity with the tax benefit to a related party, limiting the scope to the converse, but the remaining coverage is still extensive for groups with special economic zone units, new manufacturing companies or Chapter VI-A eligible businesses.

The compliance obligations are the same as for international transactions above the prescribed aggregate monetary threshold. Transactions must be benchmarked using one of the six methods. Form 3CEB must include them in the relevant clauses. The Rule 10D documentation must be maintained, and the same penalties under Sections 271AA and 271G apply. The one practical difference from international transfer pricing is that benchmarking is ordinarily simpler, because comparable Indian parties are more readily identifiable. The harder question is usually coverage — which transactions are caught, which related parties are specified persons, and how the threshold is computed — rather than the arm's length computation itself.

Our Domestic TP Services

Specified Transaction Identification

A systematic review of intra-group transactions to establish which fall within Section 92BA and with which persons, given the specified tax benefit conditions.

Threshold Computation

Aggregate value of specified domestic transactions across all covered relationships, tested against the monetary threshold for the financial year.

Arm's Length Determination

Application of the most appropriate of the six methods to benchmark specified domestic transactions, using Indian comparables where available.

Form 3CEB Domestic Transaction Reporting

Inclusion of specified domestic transactions in the applicable clauses of the accountant's report, consistent with the benchmarking study.

Rule 10D Documentation

Preparation of the documentation set for specified domestic transactions, including functional analysis and economic analysis, maintained contemporaneously.

Tax Holiday Entity Transaction Review

Specific review of transactions involving Section 10AA SEZ units, Chapter VI-A eligible businesses and new manufacturing entities.

Related Party Identification under Section 92A

Testing of domestic associated enterprise status including the Section 40A(2) relationship, which overlaps with but is not identical to the Section 92A definition.

Section 271AA and 271G Penalty Mitigation

Assessment of existing documentation gaps for domestic transactions and prioritised preparation of the material that most reduces penalty exposure.

Our Process

Coverage Determination

We identify which Indian entities and which transactions fall within Section 92BA, testing both the associated enterprise definition and the tax benefit condition.

Threshold and Scope

The aggregate value of all specified domestic transactions is computed to confirm that the documentation and reporting threshold is crossed.

Benchmarking

The arm's length price or margin is determined using the most appropriate method with Indian comparable data, and the study is documented.

Form 3CEB Reporting

The specified domestic transactions are included in the correct clauses of Form 3CEB, cross-referenced to the benchmarking documentation.

Retention and Compliance Calendar

The documentation is retained under the eight-year Rule 10D framework and the annual compliance calendar is set.

Why It Matters

✓Coverage correctly determined — which entities and which transactions

✓Threshold computed across all relationships, not just the obvious ones

✓Indian comparables used where they exist, simplifying benchmarking

✓Form 3CEB domestic clauses completed consistently with the study

✓Rule 10D documentation maintained contemporaneously, not reconstructed

✓SEZ and Chapter VI-A transactions reviewed as the highest-risk category

✓Section 40A(2) and Section 92A overlap mapped and reconciled

✓Penalty exposure under 271AA and 271G assessed and addressed

Frequently Asked Questions

Transactions covered by Section 92BA include any expenditure in respect of which payment is required to be made to a person regarded as an associated enterprise under Section 92A, where the conditions of the provision are met — specifically, where at least one of the parties enjoys a specified tax benefit. The coverage extends to services, royalties, cost allocations, loans, guarantees, property transactions and any other payment, not just transfers of goods.

Section 92BA applies only where the aggregate value of all specified domestic transactions entered into by the assessee during the previous year exceeds the prescribed limit. The limit is set in the rules and should be confirmed for the relevant year. Once crossed, the full benchmarking, documentation and Form 3CEB reporting obligations apply to all covered transactions.

A person who is an associated enterprise within the meaning of Section 92A in relation to the assessee, and where at least one of the parties benefits from a profit-linked deduction under Chapter VI-A, a deduction under Section 10AA, or is chargeable to tax at a rate lower than the rate applicable to the assessee. The associated enterprise definition under Section 92A is materially the same for domestic purposes as for international transactions.

Yes. Section 40A(2) disallows expenditure that is excessive or unreasonable having regard to market value, in payments to specified persons — which is a list that overlaps with but is not identical to Section 92A. Where a transaction falls within both, both must be addressed. Section 40A(2) applies a reasonableness standard without the formal methodology of Chapter X, while Section 92BA applies the full arm's length analysis. Both can result in disallowance of the same payment on different grounds.

Often yes, because comparable Indian entities are more likely to exist in accessible databases. The functional comparability requirement is the same, and the methods are the same, but the difficulty of finding independent price or margin comparables is typically lower than for cross-border transactions, particularly for services that are widely provided within India. The coverage and threshold questions tend to take more time than the benchmarking itself.

Section 271AA imposes a penalty of two per cent of the value of any international or domestic transaction not reported in the accountant's report. The penalty applies per transaction not reported, so omitting a category of transactions — all guarantee fees, for example — creates exposure across every year in which it was omitted. The remedy is to identify coverage before filing rather than after a notice arrives.

Have intra-group transactions with entities enjoying tax benefits?

Tell us your Indian group structure and who benefits from a tax holiday or reduced rate. We will determine coverage, benchmark the transactions and include them in Form 3CEB.