Transfer Pricing Services

Transfer pricing is the price charged when one company in a group sells goods, provides services, licenses intangibles or lends money to another company in the same group. Indian tax law requires these prices to be at arm's length – the price unrelated parties would agree in similar conditions – and requires the Indian company to keep documents proving it and to file an accountant's report every year. IMAK Advisory, an ICAI-registered CA firm in Bengaluru, helps Indian subsidiaries of foreign groups, Indian groups with overseas subsidiaries, startups with foreign parents and businesses with related-party transactions plan their pricing, prepare documentation and file the report.

Transfer pricing adjustments are among the largest tax disputes in India, and most of them begin with avoidable gaps: no agreement between the group companies, a mark-up chosen without analysis, comparables that do not match the Indian company's functions, or a report signed without anyone reading the intercompany invoices. This page explains what is transfer pricing, who it applies to, how the arm's length price is worked out, the documents and filings needed, safe harbour and advance pricing agreements, the changes under the Income-tax Act, 2025, and what our service covers.

• Planning intercompany pricing and agreements before transactions happen
• Functional analysis of functions, assets and risks
• Benchmarking with comparable companies and the most appropriate method
• Transfer pricing documentation kept under the rules
• Accountant's report in Form 3CEB, now Form 48
• Master file and country-by-country reporting checks for large groups
• Safe harbour and advance pricing agreement support
• Support during assessment by the transfer pricing officer

What is transfer pricing, in simple words? When two companies under common control deal with each other, the price they agree is not tested by the market. A foreign parent could charge its Indian subsidiary a high royalty, or pay it a low price for software services, and move profit out of India without anything illegal on the face of the invoices. Transfer pricing rules stop this by asking one question: would two independent companies, doing the same work and taking the same risks, have agreed this price?

Take an example. A US company owns an Indian subsidiary that writes software for it. The subsidiary bears its own salaries and office costs, while the US company finds customers, sets prices and bears the risk of unsold work. Independent software service companies with similar functions earn, on average, a certain mark-up on their costs. If the Indian subsidiary is paid cost plus a much lower mark-up, the tax officer can adjust its income upward to the arm's length level, and tax the difference in India.

Transfer pricing is not only about tax avoidance. It also decides how profit is shared between countries that each want to tax it. A good transfer pricing policy gives the group a single, defensible answer that both the Indian tax department and the foreign tax authority can accept.

The rules apply when an Indian taxpayer has a transaction with an associated enterprise. Two enterprises are associated if one participates in the management, control or capital of the other, directly or through intermediaries, or if the same persons participate in both. The law lists specific tests.

A transaction with an unrelated party can also be treated as an international transaction where there is a prior agreement between that party and an associated enterprise, or where the terms are in substance decided between the associated enterprises. This catches arrangements routed through a third party.

An international transaction is any transaction between two or more associated enterprises, at least one of which is a non-resident, involving goods, services, intangibles, loans, guarantees, cost sharing, business restructuring or any arrangement affecting profits or losses. The definition is wide: providing a guarantee, allotting shares, reimbursing expenses or seconding staff can all be international transactions.

Specified domestic transactions are transactions between related domestic parties where one of them enjoys a profit-linked tax incentive or a lower tax rate. Transfer pricing applies to them only when their total value in the year exceeds ₹20 crore. Ordinary payments to directors or relatives are no longer covered by this rule, though the general test of reasonable expenses still applies.

From 1 April 2026, transfer pricing moved from sections 92 to 92F of the 1961 Act to Chapter X of the Income-tax Act, 2025. The substance – associated enterprises, arm's length price, the six methods, the range and tolerance, documentation, the accountant's report, safe harbour and advance pricing agreements – remains largely the same, but section, rule and form numbers changed.

The arm's length price is determined by the most appropriate method, chosen after looking at the nature of the transaction, the functions, assets and risks of each party, the availability and reliability of data, and the adjustments needed for differences. There are six methods.

In practice, most Indian service subsidiaries use the transactional net margin method, comparing their operating profit on total cost with that of independent companies doing similar work. Interest on loans and guarantees usually uses comparable prices. Royalties may use comparable licence agreements or a profit-based method.

Comparables are independent companies or transactions similar to the tested party in functions, assets, risks and market. They are drawn from databases of company accounts using filters for business type, size, related-party transactions and data availability. The quality of the search usually decides the outcome of a dispute.

• Where there are six or more comparables, the arm's length range is the 35th to 65th percentile of their results; a price within the range is accepted, and a price outside it is adjusted to the median
• Where there are fewer than six, the arithmetic mean is used, with a tolerance band of up to 3% (1% for wholesale traders)
• Data for the current year and, in specified cases, up to two preceding years can be used
• Adjustments can be made for differences in working capital, risk or accounting

Each comparable must be defensible. A company with large related-party transactions, a different business segment or abnormal events in the year should be rejected, and the reasons recorded. Tax officers often add or reject comparables, so the search and the reasons are written up in the documentation.

The functional analysis is the foundation of transfer pricing. It records who does what in each transaction – research, development, manufacturing, marketing, sales, management – which assets each party uses, including intangibles, and which risks each party controls and bears, such as market, credit, foreign exchange, inventory and service liability risk. It decides which party is the tested party and which method is most appropriate.

A captive software or back-office centre that works only on instructions from its parent, with costs reimbursed plus a mark-up, is usually a low-risk service provider. If, in fact, the Indian team designs products, owns customer relationships or bears market risk, it is not low-risk, and a cost-plus return will not be accepted. We interview the people who run the business, not only the finance team, so that the analysis matches what actually happens.

Where the total value of international transactions in a year exceeds ₹1 crore, the Indian taxpayer must keep detailed transfer pricing documentation prepared by the specified date – the due date of the accountant's report. The documentation must be kept for the period the law requires and produced to the tax officer on request, usually within 30 days.

• Ownership structure and group profile
• Business description of the Indian entity and its associated enterprises
• Nature and terms of each international transaction, with agreements
• Functional analysis of functions, assets and risks
• Economic and industry analysis
• Method selection and reasons for rejecting other methods
• Comparable search, filters, accept and reject matrix and final set
• Arm's length price calculation and conclusion
• Assumptions, policies and forecasts relied on
• Adjustments made, if any

Documentation is not a template filled in after the year ends. When it is prepared from facts gathered during the year, it supports the pricing; when it is written to justify a number already booked, the tax officer can usually tell.

Every person who has entered into an international transaction or a specified domestic transaction above the threshold must obtain a report from a chartered accountant and file it online by the due date. For financial year 2025-26, this is Form 3CEB, due on 31 October 2026. From tax year 2026-27, the report is Form 48 under section 172 of the Income-tax Act, 2025, due one month before the return due date – 31 October 2027 for that year, unless extended.

The report lists every transaction with each associated enterprise, its value, the method used and whether it is at arm's length in the accountant's opinion. The chartered accountant certifies it after checking the books, agreements and documentation. Late or missing reports attract statutory consequences, so the report should be planned with the tax audit and the return, not after them.

Large multinational groups must also file a master file with an overview of the group's business, intangibles, financing and transfer pricing policies, and the Indian constituent may need to notify or file the country-by-country report showing revenue, profit and tax by country. The master file applies where group revenue and the Indian entity's international transactions cross the prescribed limits; the country-by-country report applies to groups with consolidated revenue above the prescribed threshold, broadly aligned with the global standard of EUR 750 million.

Many Indian subsidiaries of large groups rely on the parent's global master file. The Indian filing must still match it, and differences between the global file and the Indian documentation are a common question in assessment.

Safe harbour rules allow eligible taxpayers to accept a specified margin or rate, and in return the tax department accepts the transfer price without detailed examination. They give certainty in exchange for a margin that may be higher than a benchmarking study would show.

In the Union Budget 2026-27, the government announced major changes for IT services. Software development, IT-enabled services, knowledge process outsourcing and contract research and development related to software are combined into one category, Information Technology Services, with a common safe harbour margin of 15.5% on cost. The threshold for eligibility was raised from ₹300 crore to ₹2,000 crore, approval is to be given through an automated rule-driven process, and the option can be continued for five years at a stretch. Safe harbour rules also cover other transactions such as certain loans, guarantees and contract manufacturing, under conditions.

Safe harbour is a commercial choice. For a captive centre with a benchmarked margin close to the safe harbour margin, the certainty may be worth it. For one whose comparables show a clearly lower margin, a well-documented study may be better. We compare both before you elect.

An advance pricing agreement (APA) is an agreement with the tax department, for up to five future years, on the method or price for specified international transactions. It can be unilateral (with the Indian tax department only), bilateral or multilateral (also involving the foreign tax authority, which avoids double taxation). An APA can also be rolled back to cover up to four earlier years.

APAs take time and effort, and suit companies with large, recurring transactions and a history of disputes. The Union Budget 2026-27 announced a fast-track unilateral APA process for IT services, aiming to conclude it within two years, extendable by six months on the taxpayer's request.

From tax year 2025-26 under the 1961 Act, and continued under the 2025 Act, a taxpayer can opt to apply the arm's length price determined for a transaction in one year to similar transactions in the next two years, if the facts, functions and terms do not change materially. This reduces repeated examination of the same transaction. The option must be exercised in the prescribed form within the time allowed, and the reports and returns for the years concerned must be filed on time.

Where a transfer pricing adjustment above ₹1 crore is made or accepted, the excess money is treated as having moved out of India and must be repatriated within the prescribed time. If it is not, it is treated as a deemed advance to the associated enterprise, with interest imputed, unless the taxpayer opts to pay an additional tax instead.

Separately, interest paid to a non-resident associated enterprise, or on a loan it guarantees, is deductible only up to 30% of EBITDA where the interest exceeds ₹1 crore, with carry-forward of the disallowed amount for a limited period. Group financing needs to consider both the arm's length rate and this limit.

If a company's case is selected and has transfer pricing issues, the assessing officer refers it to a transfer pricing officer, who examines the documentation and may propose an adjustment. The company can object before the Dispute Resolution Panel (for eligible taxpayers) or appeal to the Commissioner (Appeals), and then to the Income Tax Appellate Tribunal. Under the Budget 2026-27 changes, the deadline for the transfer pricing officer's order was fixed by calendar date.

• Respond to the notice with the documentation and a summary note
• Defend each comparable and the method chosen
• Challenge comparables added by the officer with data
• Use the Dispute Resolution Panel where it suits
• Consider a mutual agreement procedure under the tax treaty to avoid double tax
• Use the result to fix the policy for later years

We prepare and present the transfer pricing case before the officer. Where a matter goes to the Tribunal or courts, we work with an advocate.

Captive IT and Back-Office Centres

Usually tested under the transactional net margin method on operating profit to total cost. We check whether safe harbour suits, whether the centre's functions really are routine, and whether pass-through costs are treated correctly.

Royalties and Brand Fees

We check what the Indian company receives for the royalty, whether the brand or technology benefits it, and whether the rate matches comparable licences.

Management Fees and Cost Allocations

Tax officers often question whether services were actually received. We keep evidence – emails, reports, timesheets – and test the allocation keys and mark-up.

Loans and Guarantees

Interest is benchmarked against market rates for a borrower of similar credit standing and currency; guarantee fees are benchmarked separately.

Distribution of Goods

Distributors are tested on gross or operating margin; marketing spend beyond a routine level can raise questions about who owns the brand value created in India.

Share Issues and Business Restructuring

Issue of shares to a foreign parent, buy-backs and transfers of business need valuation and pricing that satisfies transfer pricing, FEMA and company law together.

The same intercompany price is examined by different authorities for different reasons. Customs may ask whether an import price from a related supplier is too low; the income-tax department may ask whether it is too high. Year-end true-up adjustments can affect customs valuation and GST. Payments to associated enterprises also need the tax position confirmed in Form 15CB (now Form 146) before remittance, and the transfer pricing file and the certificate must not contradict each other. We look at these together.

An intercompany agreement is the first document a tax officer asks for, and often the weakest. A good agreement describes the services or goods, who decides what, which party bears which risks, how the price is calculated, when invoices are raised and paid, how year-end adjustments are made, and who owns any intellectual property created. It should match what the two companies actually do; an agreement that describes the Indian entity as a low-risk service provider while its staff run the product roadmap will not help in a dispute.

• Scope of services or products, with examples
• Pricing formula, cost base and mark-up or royalty rate
• Invoicing frequency, currency and payment terms
• Year-end true-up mechanism and its limits
• Ownership of intellectual property and confidentiality
• Term, renewal and exit
• Governing law and dispute resolution

Agreements should be signed before the transactions start, stamped as required, and reviewed whenever the business model changes. We prepare the commercial and tax terms with your team, and advocates finalise the legal drafting where needed.

1. Understand the group, the Indian entity and the transactions from agreements, invoices and the trial balance
2. Interview operations and finance teams for the functional analysis
3. Select the method and tested party
4. Run the comparable search and document accepted and rejected companies
5. Compare results with the arm's length range and advise on any adjustment
6. Prepare the documentation, and the master file inputs where applicable
7. Certify and file Form 3CEB (now Form 48)
8. Set the pricing policy and agreements for the next year

For new subsidiaries, we start before the first invoice: an intercompany agreement, a pricing policy and a monthly process are cheaper than defending a first-year adjustment.

We do not publish fees. The cost depends on the number and types of international transactions, the number of associated enterprises, whether benchmarking is new or a roll-forward, master file needs, and any assessment support. Our team shares the exact total after reviewing your requirements.

A New Captive Centre in Bengaluru

A European company set up a software centre in Bengaluru. Before the first invoice, we drafted the service agreement, set a cost-plus policy after a benchmarking study, and compared it with the safe harbour margin. The company chose safe harbour for certainty and the first report was filed on time.

A Distributor With Rising Marketing Costs

An Indian distributor of a foreign brand spent heavily on advertising, while its margin stayed low. The documentation showed the spend and how it was reimbursed, and the pricing policy was changed so that the parent bore non-routine brand-building costs.

A Startup Owned by a Foreign Holding Company

A startup's parent charged it for shared tools and staff, but there was no agreement and no evidence of services. We put an agreement in place, collected evidence, tested the charges and filed the report for the year, avoiding a disallowance of the whole cost.

• No written intercompany agreement
• Pricing policy set once and never reviewed
• Functional analysis copied from the group template, not the Indian facts
• Comparables with different functions or large related-party dealings
• Ignoring guarantees, reimbursements and share issues as transactions
• No evidence that management services were received
• Documentation prepared after the report is signed
• Customs, GST and income-tax positions that contradict each other
• Missing the due date for the accountant's report

Loss-Making Captives

A captive service provider remunerated at cost plus should not normally make losses; if it does, the reasons must be documented.

Start-Up Year Costs

Costs in the first year may be high relative to revenue; the policy should say how they are treated.

Permanent Establishment Risk

Indian staff who conclude contracts for the parent can create a permanent establishment, which is a separate tax issue from transfer pricing.

Domestic Groups With Tax Holidays

Units enjoying profit-linked deductions dealing with related domestic parties above ₹20 crore need specified domestic transaction documentation.

• We do not certify a report without documentation
• We do not choose comparables to reach a pre-decided margin
• We do not act as statutory auditor and transfer pricing certifier in a way that independence rules prohibit
• We do not appear before courts; an advocate does
• We do not promise the outcome of an assessment or an APA

If your international transactions with associated enterprises are small and below the documentation threshold, you still need the accountant's report but may not need a full study. If your group's global adviser prepares the Indian documentation and your auditors review it, you may need us only for the report or a second opinion. We will tell you if that is the case.

1. Which group companies does the Indian entity deal with?
2. What is each transaction, and is there a written agreement?
3. Who does the key work, owns the assets and bears the risks?
4. What pricing policy is used, and when was it last benchmarked?
5. Were any adjustments, notices or APAs made in earlier years?
6. Is safe harbour available, and is it worth electing?
7. Who will provide data from the group?

Transfer pricing work involves group pricing, margins and strategy. As chartered accountants we follow ICAI's confidentiality rules. Access is limited to named team members, and data from comparables databases is used only for your study.

Use this list each year to keep transfer pricing under control.

• Associated enterprises and transactions listed
• Intercompany agreements in place and current
• Pricing policy applied in invoices
• Functional analysis updated
• Benchmarking done or rolled forward
• Safe harbour or APA position decided
• Documentation completed by the due date
• Form 3CEB (now Form 48) filed by 31 October
• Master file and country-by-country obligations checked
• Customs, GST and remittance papers consistent

Our only office is in Whitefield, Bengaluru, home to many captive and global capability centres, where clients can meet us in person. Transfer pricing work is done online with data from the group, so we serve companies in every state. We do not have offices outside Bengaluru.

What is transfer pricing?

It is the pricing of transactions between associated enterprises, such as a parent and subsidiary. Indian law requires these prices to be at arm's length and documented.

Who needs transfer pricing compliance in India?

Anyone with international transactions with an associated enterprise, and those with specified domestic transactions above ₹20 crore in the year.

What is an arm's length price?

The price that unrelated parties would agree in a comparable transaction under similar conditions, determined by the most appropriate method.

What are the transfer pricing methods?

Comparable uncontrolled price, resale price, cost plus, profit split, transactional net margin and other method.

What is Form 3CEB?

The accountant's report on international and specified domestic transactions. From tax year 2026-27 it is Form 48 under the Income-tax Act, 2025.

What is the due date of the transfer pricing report?

One month before the return due date – 31 October for most companies. For financial year 2025-26 it was 31 October 2026.

When is transfer pricing documentation required?

When international transactions in the year exceed ₹1 crore. The documentation must exist by the due date of the report.

What is the arm's length range?

The 35th to 65th percentile of comparables' results where there are at least six comparables. A price outside it is adjusted to the median.

What is safe harbour in transfer pricing?

A specified margin or rate that the tax department accepts without detailed review. For IT services, Budget 2026-27 set a common margin of 15.5% with a ₹2,000 crore threshold.

What is an advance pricing agreement?

An agreement with the tax department on the method or price for future years, with an option to roll it back to earlier years.

What is the block option for arm's length price?

An option to apply one year's arm's length price to similar transactions in the next two years, if facts do not change materially.

What is a secondary adjustment?

Where an adjustment above ₹1 crore is made, the excess must be brought back to India; otherwise it is treated as an advance with interest.

Do domestic related-party transactions need transfer pricing?

Only specified domestic transactions, mainly involving tax-incentive units, when their total exceeds ₹20 crore in the year.

What happens if transfer pricing is not followed?

Income can be adjusted with tax and interest, and penalties or fees can apply for missing documentation or reports.

Can a startup with a foreign parent be covered?

Yes. Any transaction with the foreign parent, including cost recharges and share issues, can be an international transaction.

How much does transfer pricing cost?

We do not publish fees. The cost depends on the transactions, benchmarking, documentation and assessment support, and our team shares the exact total after reviewing your requirements.

Form 15CA and 15CB · FEMA and FDI Compliance · Tax Audit · Business Valuation · Tax Notices and Appeals · International Taxation

Share the group structure, the list of transactions with group companies, the agreements and last year's report. Our team will confirm the scope, the method and the calendar.

Contact Details

Office Address

IMAK Advisory, ITPL Main Rd, Pattandur Agrahara, Whitefield, Bengaluru, Karnataka 560066, India

Phone

+91 79798 50684 (call or WhatsApp)

Email

imakadvisoryteam@gmail.com

Sources: Income-tax Act, 2025, Chapter X (sections 161 to 177) and Income-tax Rules, 2026; Income-tax Act, 1961, sections 92 to 92F and rules 10A to 10E for earlier years; PIB release on Union Budget 2026-27 safe harbour and APA changes (1 February 2026). Checked 2 November 2026.