Transfer Pricing in India: Compliance Guide for Cross-Border Transactions
India has emerged as a major hub for multinational enterprises (MNEs), but with global operations comes the responsibility of adhering to transfer pricing regulations. If your business is involved in international transactions with related entities, understanding and complying with India’s transfer pricing laws is critical.
Jain Prachi & Company offers expert guidance to help foreign investors, international companies, and subsidiaries in India meet their transfer pricing obligations efficiently, reduce tax risks, and ensure regulatory compliance.
What Is Transfer Pricing and Why Does It Matter in India?
Transfer pricing refers to the pricing of goods, services, or intangibles transferred between associated enterprises situated in different tax jurisdictions. To prevent profit shifting and ensure that Indian entities report appropriate taxable income, India enforces strict transfer pricing rules under the Income Tax Act, 1961.
These rules apply to:
- Cross-border transactions between associated enterprises (AEs)
- Certain specified domestic transactions
Non-compliance can result in substantial penalties, interest liabilities, and scrutiny from the Indian tax authorities.
Who Needs to Comply with Transfer Pricing Regulations in India?
The transfer pricing framework applies to:
- Foreign companies with Indian subsidiaries
- Indian subsidiaries of multinational groups
- Joint ventures and wholly-owned subsidiaries in India
- Indian companies entering into financial or operational transactions with group entities abroad
Associated Enterprises (AEs):
Two entities are considered AEs if one directly or indirectly participates in the management, control, or capital of the other, or if both are under common control.
Examples of international transactions subject to transfer pricing:
- Sale or purchase of goods/services
- Royalty payments
- Loans or financial guarantees
- Reimbursements
- Use of intangible assets like trademarks, know-how, or software
Transfer Pricing Methods Permitted in India
To determine whether a transaction is at an arm’s length price (ALP), Indian regulations allow the following methods:
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method
- Cost Plus Method
- Profit Split Method
- Transactional Net Margin Method (TNMM)
- Other Method (as prescribed under the rules)
The most appropriate method depends on the nature of the transaction and data availability.
Key Transfer Pricing Compliance Requirements
- Transfer Pricing Documentation (Rule 10D)
Taxpayers must maintain documentation that justifies the arm’s length pricing of their international transactions. This includes:
- Company and group overview
- Nature and terms of international transactions
- Functional, asset, and risk (FAR) analysis
- Economic analysis and benchmarking study
- Transfer pricing method used
- Form 3CEB Filing
- Required for all entities entering into international or specified domestic transactions.
- Must be certified by a Chartered Accountant.
- Due date: November 30 following the financial year-end.
- Master File and Country-by-Country Reporting (CBCR)
Applicable to MNEs with consolidated global revenue above ₹500 crore:
- Master File (Form 3CEAA): Overview of the global business operations and transfer pricing policies.
- CBCR (Form 3CEAC/3CEAD): Country-wise breakdown of revenue, profits, assets, and activities.
Common Transfer Pricing Challenges Faced by International Businesses
- Determining appropriate margins and comparables
- Choosing the most suitable transfer pricing method
- Managing pricing of intangible assets and intercompany services
- Handling audits and scrutiny from Indian tax authorities
- Avoiding double taxation across jurisdictions
How Jain Prachi & Company Helps International Clients Stay Compliant
Transfer pricing regulations in India are complex, and the consequences of non-compliance can be severe. Jain Prachi & Company offers robust transfer pricing advisory services designed to protect your business from tax risks and ensure regulatory compliance.
Our Services Include:
- Transfer pricing study and documentation
- FAR analysis and method selection
- Benchmarking using public databases
- Filing of Form 3CEB and Master File/CBCR forms
- Representations before tax authorities in case of audits
- Advisory on Advance Pricing Agreements (APAs)
We bring industry-specific insights and global experience to help MNEs operating in India align their pricing policies with regulatory expectations.
Why Choose Jain Prachi & Company?
- Deep expertise in international taxation and transfer pricing laws
- Proven track record across IT/ITES, manufacturing, retail, and fintech sectors
- Comprehensive support from documentation to litigation
- Transparent, fixed-fee service packages for compliance
Schedule a Consultation for Transfer Pricing Compliance
If your Indian operations involve cross-border related-party transactions, ensure your pricing structure and documentation meet Indian tax regulations. Contact Jain Prachi & Company to minimize tax exposure and regulatory risk.
📧 Email: contactus@jainprachi.com
🌐 Website: https://jainprachi.com
Get in touch with our team today for a tailored transfer pricing strategy.
FAQs – Transfer Pricing in India
Q: Is transfer pricing compliance mandatory even if the transaction value is low?
Yes, all international transactions between related parties must comply, regardless of size.
Q: What happens if I fail to file Form 3CEB?
Failure to file may result in penalties of ₹100,000, with additional penalties for failure to maintain documentation.
Q: Can I avoid transfer pricing audits?
While audits are at the discretion of the tax department, proper documentation and a strong benchmarking study reduce the likelihood of adverse scrutiny.
