Transfer pricing for Indian group companies: when it applies and what to file

This note reflects the law as at 1 October 2026. It is general information, not advice for a particular case.

This note is addressed to the promoters, finance heads and accountants of family-owned manufacturing groups in Maharashtra. Transfer pricing reaches such groups more often than is assumed. A sales company established in Germany or the UAE brings a group within it, as does a foreign collaborator holding a stake, or an Indian company that guarantees the bank line of an overseas subsidiary. Transactions with these associated enterprises must be priced at arm's length and documented, and a chartered accountant must certify them in a report.

The provisions are in sections 161 to 173 of the Income-tax Act, 2025 (sections 92 to 92F of the Income-tax Act, 1961). For transactions of 2025-26 the report is Form 3CEB, due by 31 October 2026. From tax year 2026-27 it is Form 48, due one month before the return.

The cost of a lapse grows with turnover, because documentation penalties are set at 2% of the value of each transaction. The sections below explain which relationships and transactions are covered and how the price is tested. What must be filed follows, with a worked example for a Nashik group.

In short

• Transfer pricing requires transactions with associated enterprises to be priced as they would be between unrelated parties, that is, at arm's length.
• It covers international transactions of any size, and specified domestic transactions above ₹20 crore. The domestic category is now narrow.
• The Income-tax Act 2025 applies from 1 April 2026. The provisions move from sections 92–92F to sections 161–173, with little change in substance.
• For 2025-26 the report is Form 3CEB. From tax year 2026-27 it is Form 48. Each is due one month before the return.
• Penalties for documentation failures are set at 2% of the transaction value, so they rise with the size of the business.

1. Which law applies to which year

From 1 April 2026 the Income-tax Act 2025 replaced the Income-tax Act 1961. The new Act uses a single "tax year" in place of "previous year" and "assessment year".

The September 2026 extension does not cover transfer pricing cases. CBDT Circular No. 07/2026 of 28 September 2026 moved the tax audit report date for assessment year 2026-27 to 21 October 2026, and the return date to 21 November 2026. Both extensions apply only to taxpayers to whom section 92E does not apply. A company with international transactions or SDTs must still furnish Form 3CEB by 31 October 2026 and file its return by 30 November 2026, unless CBDT announces a separate change.

From tax year 2026-27, section 173 of the 2025 Act defines the "specified date" for Form 48 as one month before the return due date. Section 263 fixes that return date at 30 November for persons to whom section 172 applies.

The transfer pricing provisions have been renumbered in the new Act. According to the Government, the purpose is simplification with no change of policy, and the concepts carry over.

2. Associated enterprises

Transfer pricing applies only between associated enterprises. In broad terms, two enterprises are associated where one participates in the management, control or capital of the other, or where the same persons participate in both. Specific tests are then listed in the law. For family groups, the most relevant are these:

• one holds, directly or indirectly, 26% or more of the voting power in the other, or the same person holds 26% or more in both;
• a loan from one to the other is 51% or more of the borrower's total assets (book value);
• one guarantees 10% or more of the other's total borrowings;
• one appoints more than half the board, or one or more executive directors, of the other;
• one's manufacturing is wholly dependent on know-how, patents or similar rights owned by the other;
• 90% or more of the raw materials and consumables are supplied by the other, at prices and conditions it influences;
• the goods it manufactures are sold to the other, at prices and conditions the other influences;
• both are controlled by the same individual or by relatives, or by the same Hindu undivided family.

Many promoter-owned groups fall within the last test, even where no company holds shares in another.

3. International transactions and specified domestic transactions

International transactions. These are transactions between two associated enterprises where either or both are non-resident. The definition is wide. It covers the purchase, sale or lease of goods and property, and services. Lending and borrowing are included, along with guarantees, cost-sharing and business restructuring. A transaction with an unrelated party can be deemed international if there is a prior agreement with an associated enterprise, or if such an enterprise sets the terms in substance. No value threshold applies to this category.

Specified domestic transactions (SDTs). These are transactions between related Indian parties in defined categories only. They are covered only where their aggregate exceeds ₹20 crore in the year (section 164 of the 2025 Act; section 92BA of the 1961 Act).

Many groups assume the category is wider than the law now provides. Up to 2016-17 it included payments to related persons covered by section 40A(2)(b), and the Finance Act 2017 removed that item. The category now covers mainly transactions involving undertakings that claim profit-linked tax holidays, together with units taxed at a concessional rate, such as new manufacturing companies under section 115BAB of the 1961 Act.

As a result, transfer pricing usually has no application when two ordinary Indian group companies trade with each other. Other rules still apply. These include the deduction for excessive or unreasonable payments to related persons and related-party approvals under section 188 of the Companies Act 2013. Accounting disclosures and GST valuation between related persons also continue to apply.

4. Arm's length price, in plain words

An arm's length price is the price that unrelated parties would have agreed in similar circumstances. Six methods are prescribed, and the "most appropriate" one is applied.

If there are several comparable results, the law applies a range or, in some cases, the arithmetic mean with a tolerance band. The analysis is based on the functions performed, assets used and risks assumed by each party. This is commonly called the FAR analysis.

5. Documentation and the accountant's report

Documentation. A company with international transactions or SDTs must keep prescribed information and documents. These cover the group structure and a description of the business, followed by the nature and terms of each transaction and the FAR analysis. The method chosen, the reasons for it, the comparables and the computation complete the file. All of it should exist by the date the report is due, well before any notice is received.

The detailed documentation is not required where the aggregate value of international transactions, as recorded in the books, does not exceed ₹1 crore. This relief is found in rule 10D(2) of the Income-tax Rules 1962, and in rule 84(2) of the Income-tax Rules 2026 from tax year 2026-27. It covers documentation alone. The arm's length requirement and the accountant's report still apply.

Larger groups must also file a master file where consolidated group revenue exceeds ₹500 crore and international transactions exceed ₹50 crore, or ₹10 crore for intangibles. Above ₹6,400 crore of consolidated revenue, a country-by-country report is required. Most family groups in Nashik fall below these limits.

The accountant's report. Any person who has entered into an international transaction or an SDT during the year must obtain a report from a chartered accountant and furnish it by the due date. The report for 2025-26 is Form 3CEB. From tax year 2026-27 it is Form 48 under section 172. Such companies must file the return of income by 30 November, and the report is due one month earlier.

6. Penalties, in summary

Section 447 of the new Act carried the ₹1 lakh penalty for failing to furnish the report. The Finance Act 2026 omitted it and introduced the graded fee in its place. Where a company kept its documentation, disclosed the facts and determined the price in good faith, under-reporting penalties generally do not apply to a transfer pricing addition.

An adjustment can have two further consequences. Under a secondary adjustment, the excess money may have to be brought back from the overseas entity within a set time; if it is not, it is treated as an advance on which interest is charged. In addition, no profit-linked deduction is allowed on income added by the adjustment (section 165(7) of the 2025 Act; the proviso to section 92C(4) of the 1961 Act).

7. Safe harbour and advance pricing agreements

Under safe harbour (section 167; section 92CB of the 1961 Act), an eligible company may adopt a prescribed margin or rate, which the department then accepts. This removes the risk of an adjustment for that transaction, although documentation is still required. Past categories have included intra-group loans to overseas subsidiaries and corporate guarantees. Certain services were also covered, as was the manufacture and export of core and non-core auto components. These rules have been revised by the Income-tax Rules 2026, so the categories, rates and conditions should be checked for the relevant year.

An advance pricing agreement settles the method or price with the department for up to five future years, and it can be applied back to earlier years. It is suited to larger, recurring transactions. The Finance Act 2025 also introduced a block approach, under which an arm's length price accepted for one year may, subject to conditions, apply to the next two.

8. How family-owned manufacturing groups come within transfer pricing

In a family-owned manufacturing group, transfer pricing seldom arises from a deliberate structure. The usual causes are these:

• an overseas sales or service company formed for a key customer, buying from the Indian company;
• a foreign technical collaborator holding 26% or more and charging royalty or technical fees;
• the Indian company guaranteeing the overseas subsidiary's bank borrowings, without a fee;
• an interest-free or low-interest loan to the overseas company;
• engineers, designers or management in Nashik supporting the subsidiary without any charge;
• reimbursements of travel or software costs that nobody records as transactions;
• a new manufacturing company on a concessional rate trading with older group companies, which brings in the SDT rules.

The common point in every case is that an unrecognised transaction cannot be reported. An international transaction left unreported can be treated as misreporting.

9. A worked example: a Nashik group with a subsidiary in Germany

The figures are illustrative. No real business is described.

A family group has three entities:

• Company A, in Ambad MIDC, makes precision machined components;
• Company B, in Sinnar MIDC, owned by the same family, does heat treatment and plating for A;
• A-GmbH, a wholly owned subsidiary of A in Germany, that sells A's parts to European customers.

In tax year 2026-27:

What A must do. A's international transactions total well above ₹1 crore, so full documentation is kept. Form 48 is obtained from a chartered accountant, due by 31 October 2027 on the present reading, and the return is filed by 30 November 2027. For the 2025-26 transactions, the same work is reported on Form 3CEB under the 1961 Act.

The exposure if nothing is done. Assume the Transfer Pricing Officer sets an arm's length margin of 9% on the sales, against A's 6%. The adjustment is 3% of ₹28 crore, which adds ₹84 lakh to income, taxed at A's rate with interest. The unbilled support and the free guarantee would also be examined. Without documentation, the penalty alone could reach 2% of each transaction's value, which is ₹56 lakh on the sales.

What this means for a manufacturing group

• Draw a group chart each year, including family-controlled companies and anyone holding 26% or more.
• List every flow with each overseas entity: goods, services, loans, guarantees, reimbursements and staff time.
• Put written agreements in place for each type of transaction, with pricing terms.
• Charge for guarantees and support services, or record in writing why no charge is at arm's length.
• Check whether any group company has a tax holiday or concessional rate, since that is what brings domestic transactions into scope.
• Prepare documentation before the year-end close, and enter the accountant's report date in the compliance calendar, as two forms and two Acts now apply side by side.

This article is general information on the law as at 1 October 2026 and is not advice on any particular case. The Income-tax Rules 2026 and related notifications are new; check the current text before acting.