Arm’s length pricing for Indian startups: documenting related-party transactions before a TP audit

Most Indian startups with a foreign parent, subsidiary, or group company end up with related-party transactions long before anyone on the finance team has built a transfer pricing file. A management fee gets billed, an intercompany loan gets booked, a services agreement gets signed on a template from the lawyer who did the Delaware incorporation. None of that is unusual. What is unusual, and what triggers most disputes, is reaching the financial year end with no contemporaneous record of how those numbers were arrived at. This article walks through exactly what documentation needs to exist, when it needs to exist, and how to build it before a transfer pricing officer asks for it rather than after.

Which transactions actually need arm’s length documentation?

Any transaction between your Indian entity and an associated enterprise, defined under Section 162 of the Income-tax Act, 2025 (previously Section 92A of the Income-tax Act, 1961), needs to be priced and documented at arm’s length if it qualifies as an international transaction or a specified domestic transaction. This covers far more than the obvious cross-border services agreement. It includes management fees, software development or IT-enabled service charges, royalty payments for licensed intellectual property, intercompany loans and guarantees, cost allocations for shared personnel or infrastructure, and equity compensation cross-charges where an Indian subsidiary reimburses a foreign parent for ESOPs issued to Indian employees.

For an Indian startup, the relationships that most commonly create this exposure are a Delaware or Singapore parent invoicing the Indian entity for shared services, an Indian subsidiary developing software for a foreign parent on a cost-plus basis, royalty flows where intellectual property sits offshore after a flip, and intercompany loans used to fund working capital between group entities. Section 163 of the Income-tax Act, 2025 (previously Section 92B) defines the international transaction test broadly enough that even a deemed transaction, where an unrelated third party’s dealing with your Indian entity is in substance influenced by an arrangement with your associated enterprise, can be pulled into scope.

Specified domestic transactions matter too, though founders rarely think about them. If your group has multiple Indian entities, say an operating company and a holding company under common promoters, and they transact with each other above the prescribed threshold, the same arm’s length standard applies domestically under Section 162(2). Startups restructuring before a funding round, where IP or a business vertical moves between Indian group entities, frequently miss this.

Don’t forget the Companies Act layer running alongside transfer pricing

Income tax documentation is not the only arm’s length test a related-party transaction has to clear. Section 188 of the Companies Act, 2013 requires board approval for related-party transactions above prescribed thresholds, and audit committee approval for any related-party transaction regardless of size, with the explicit expectation that the transaction is conducted on an arm’s length basis, defined under the Act as one where the related parties deal with each other as if there were no conflict of interest. This obligation applies to every company, private or listed, and sits independently of whether the transaction also crosses the ₹1 crore income tax threshold.

For a startup, this usually surfaces first with intercompany loans, a management fee arrangement with a holding entity, or a services agreement with an entity where a common director sits on both boards. None of these need a separate transfer pricing study to satisfy Section 188, but the board resolution approving the transaction should reference the same pricing rationale and, where one exists, the same benchmarking support used for the income tax local file. Building these as two unconnected paper trails, one for the auditor and one for the TPO, is unnecessary duplication that a single well-documented FAR analysis and board note can avoid. Listed entities carry an additional layer under Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, requiring shareholder approval for material related-party transactions, but this typically becomes relevant only closer to an IPO, not at the stage most startups are documenting their first intercompany arrangement.

What changes once you cross the ₹1 crore threshold?

Documentation under Section 171 of the Income-tax Act, 2025 (previously Section 92D, read with Rule 10D of the Income Tax Rules, 1962, now Rule 84 of the Income Tax Rules, 2026) becomes mandatory once the aggregate value of international transactions, as recorded in the books, exceeds ₹1 crore in a financial year. Below that threshold, founders still need to be able to show the transaction is priced reasonably, but the formal local file obligation does not apply.

Crossing the threshold changes three things at once. First, you need a contemporaneous local file: a written record of the functional analysis, the comparables search, and the pricing method, prepared at or near the time of the transaction. Second, you need an accountant’s report certified by a chartered accountant and filed with the income tax return. Third, the transaction becomes visible to the income tax department’s risk-assessment systems the moment that report is filed, which is what makes you eligible for selection for a transfer pricing audit reference to the transfer pricing officer.

A timing point that matters right now: income earned in FY 2025-26 is assessed as AY 2026-27 under the Income-tax Act, 1961, and that return, including Form 3CEB under Section 92E, is what is currently due, with Form 3CEB filing for taxpayers with international transactions typically due by 30 November 2026 alongside the tax audit report. The Income-tax Act, 2025 came into force on 1 April 2026 and governs income earned from that date, assessed as Tax Year 2026-27 under the new Act’s single tax year concept, with the first return under the new Act, and the first Form No. 48 filing, due only in 2027. If your business is transacting now, the documentation discipline described in this article applies to those live transactions under the new Act framework, even though the return covering them is still a year away. The practical effect is that founders are building two compliance tracks in parallel this year: closing out the old Form 3CEB filing for FY 2025-26, and building the Transaction Master Register and FAR analysis for FY 2026-27 transactions that will eventually be reported on Form No. 48.

A nuance founders often miss: the ₹1 crore threshold is computed on aggregate international transactions across all associated enterprises in the year, not per counterparty. A startup that bills its US parent ₹60 lakhs for development services and separately pays a ₹50 lakhs management fee to the same parent has crossed the threshold even though no single line item did.

Table: Documentation thresholds and obligations by transaction value (Income-tax Act, 2025 framework, applicable from Tax Year 2026-27; Form 3CEB and the equivalent 1961 Act thresholds apply for AY 2026-27 and earlier years)

Transaction value (aggregate, per financial year)	Local file (Section 171)	Form No. 48 (Section 172)	Master file applicability
Below ₹1 crore	Not mandatory, but informal pricing rationale recommended	Not required	Not applicable
₹1 crore to ₹50 crore	Mandatory	Mandatory	Generally not applicable unless group consolidated revenue exceeds ₹500 crore
Above ₹50 crore (and group consolidated revenue above ₹500 crore)	Mandatory, with enhanced benchmarking depth	Mandatory	Master file required under Rule 10DA equivalent provisions
Specified domestic transactions above ₹20 crore	Mandatory under Section 162(2) read provisions	Mandatory (Part D of Form No. 48)	Not applicable

Why contemporaneous documentation is the single biggest audit risk

A FAR analysis and benchmarking study prepared in March, while the transaction is live and the comparables search reflects that year’s market data, is treated as primary evidence of intent. The same document built in October of the following year, after the tax audit deadline has already passed and the return has already been filed, is treated by a transfer pricing officer as a retrofit, regardless of how accurate the numbers turn out to be. This is not a technicality. Documentation built after the fact tends to use comparables data, margin benchmarks, or industry classifications that were not available or were materially different at the time the transaction actually happened, and a TPO who spots that gap will use it to question every other number in the file.

The practical fix is to treat transfer pricing documentation as a year-round function tied to the transaction itself, not a year-end compliance task tied to the tax filing deadline. The moment an intercompany agreement is signed, billing starts, or a loan is disbursed, three things should be captured immediately: the functional characterisation of each party, the rationale for the pricing method chosen, and a snapshot of the comparable data used at that point in time. None of this needs to be in final report format. A dated internal memo, an email trail with the agreed pricing logic, or a spreadsheet with the benchmarking inputs is enough to establish contemporaneity, as long as it is dated at or near the transaction and not assembled later.

Building a Transaction Master Register before your year closes

A Transaction Master Register is an internal log that assigns a unique identifier to every intercompany transaction stream the moment it starts, and tracks the counterparty, the nature of the transaction, the pricing method, the billing frequency, and the agreement reference. This is the single most useful document a founder can build before a TP audit, because it is also exactly what Form No. 48’s structured, ID-linked architecture under the Income-tax Act, 2025 now expects.

A practical register for an early-stage startup with one foreign parent typically needs to capture six to ten transaction streams: a management or shared services fee, a software development or R&D services charge, an IP licence or royalty if any IP sits offshore, an intercompany loan or working capital facility, an ESOP cross-charge if the foreign parent issues options to Indian employees, and any reimbursement of common costs like cloud infrastructure or SaaS subscriptions billed centrally.

Building this register before the financial year closes, rather than reconstructing it from invoices and bank statements after the year ends, has a direct cost benefit. Auditors and transfer pricing consultants charge materially more to reconstruct a year’s transactions from raw accounting data than to review and benchmark a register the finance team has already maintained. It also means the chartered accountant certifying Form No. 48 is verifying an existing record rather than building one from scratch under time pressure before the filing deadline.

What a FAR analysis needs to contain to survive scrutiny

A functions, assets, and risks analysis, commonly shortened to FAR analysis, is the document a transfer pricing officer reads first, and it is the document founders most often delegate entirely to an external consultant without reviewing. The FAR analysis needs to answer three questions for each party to the transaction: what functions does each entity actually perform, what assets, particularly intangible assets like IP or customer relationships, does each entity own or control, and what risks, market risk, credit risk, foreign exchange risk, does each entity bear in substance.

The most common failure is a FAR write-up that describes the contractual allocation of functions and risks rather than what actually happens. If the intercompany services agreement says the Indian subsidiary performs routine software development under the direction of the foreign parent, but in practice the Indian team owns the product roadmap, negotiates with customers directly, and bears the commercial risk if a feature fails, a TPO will recharacterise the relationship and apply a higher markup or a different method entirely, regardless of what the contract says. Substance over form is the operating principle in every transfer pricing dispute in India, and it cuts against the taxpayer more often than founders expect.

For an Indian startup specifically, the FAR analysis needs to be explicit about which entity owns the intellectual property created during the engagement, because this is where the largest adjustments tend to land. If the Indian subsidiary is doing genuine product development work and all resulting IP is assigned to the foreign parent for a flat cost-plus fee with no contingent upside, the FAR analysis has to justify why the Indian entity is being compensated as a low-risk service provider rather than as a co-developer entitled to a share of the profit the IP eventually generates.

Choosing a pricing method without overengineering it

Six methods are recognised under Indian transfer pricing law: Comparable Uncontrolled Price, Resale Price Method, Cost Plus Method, Transactional Net Margin Method, Profit Split Method, and any other method prescribed by rule. For most early-stage Indian startups, the choice in practice narrows to two: the Cost Plus Method for routine services like development or back-office support, and the Transactional Net Margin Method when a reliable cost base is hard to isolate or when benchmarking against an operating margin is more defensible than a gross cost markup.

The documentation does not need to justify why the other four methods were rejected in exhaustive detail. It needs to demonstrate that the chosen method was selected because it was the most appropriate given the facts, with a short, reasoned explanation of why the alternatives were less suitable. Overengineering this section, producing twenty pages comparing all six methods for a routine ₹2 crore services arrangement, wastes documentation budget that would be better spent on a tighter comparables search.

Where the safe harbour route applies, it removes the need for this analysis entirely for the eligible transaction. The Safe Harbour Rules under the Income-tax Act, 2025, codified under Section 167, were finalised under the Income Tax Rules, 2026 (notified 20 March 2026) to consolidate software development services, IT-enabled services, knowledge process outsourcing, and contract research and development for software under a single IT services category with rationalised turnover thresholds and operating margins, applicable for a block of five consecutive tax years for eligible transactions from Tax Year 2026-27 onward. A startup whose intercompany services billing fits within the eligible turnover band and accepts the prescribed margin gets pricing certainty without a full benchmarking study, though documentation and the Form No. 48 filing, or Form 3CEB if the transaction relates to AY 2026-27 or an earlier year, are still required even under safe harbour.

The tolerance band that protects a taxpayer when the actual price falls within a small range of the arithmetic mean of comparables, historically 1 percent for wholesale trading and 3 percent for all other transactions, continues to apply under the new Act and is notified annually by the Central Board of Direct Taxes. CBDT Notification No. 157/2025, dated 06/11/2025, prescribed these limits for AY 2025-26. Founders should not assume the same percentage carries forward automatically to a later assessment year without checking the corresponding notification, since the CBDT issues this afresh each year.

The method matters less than the quality of the comparables behind it, and this is where most benchmarking studies actually fail under scrutiny. A TPO disputes comparables far more often than methods. The recurring errors are using full-risk comparables to benchmark a limited-risk service provider, for instance a full-fledged product company with sales and marketing risk used as a comparable for an Indian entity that does cost-plus development with no market risk of its own, including companies in the uncontrolled comparables set that themselves carry a high proportion of related-party transactions, which defeats the point of an uncontrolled benchmark, relying on a single year of comparable data instead of a multi-year average where the rules permit it, and failing to adjust for differences in working capital position or capacity utilisation between the tested party and the comparables. A benchmarking study that gets the method right but uses three comparables with materially different risk profiles is weaker than one that picks a conservative method with a tight, defensible comparable set.

How does Form No. 48 change documentation requirements for startups?

Form No. 48 will replace Form 3CEB once the Income-tax Act, 2025 framework applies, but it is not yet the form due for the return currently being filed. Form No. 48 governs Tax Year 2026-27 onward, that is, transactions from 1 April 2026, with the first filing due alongside the new Act’s first return in 2027. The structural difference matters more than the name change. Form 3CEB asks for aggregate disclosures by transaction type. Form No. 48 assigns a unique associated enterprise identifier to each counterparty and requires every transaction stream to be reported individually, cross-linked to the entity ID, with Part B’s aggregate totals auto-populated from the line-level entries in Part C and Part D. This means inconsistencies that used to disappear into a rounded aggregate number will become immediately visible to both the certifying accountant and the tax authority once it takes effect.

Part F of the form is the documentation certification, activated only once the materiality threshold is crossed. It will ask the assessee to confirm whether the proviso to Rule 84(4) exemption from fresh documentation applies, and if not, whether the prescribed information under Section 171 has actually been maintained. This is a direct, binary disclosure that a chartered accountant will not be able to certify on faith. If the underlying Transaction Master Register and FAR write-up do not exist or are incomplete by the time Tax Year 2026-27 closes, the accountant will either qualify the certification or decline to sign, both of which are red flags that increase audit selection risk far more than a clean but conservative pricing position ever would.

For an Indian startup with a single foreign parent and four or five recurring transaction streams, the practical effect is that Form No. 48 will require the same line-level discipline that used to only matter for large multinational groups with dozens of associated enterprises. The relationship code dropdown under Section 162(1), with fourteen specified categories, will need to be selected accurately for each AE, which is a small detail with an outsized consequence if a holding company is misclassified as a fellow subsidiary or vice versa. Taxpayers opting into the revised safe harbour rules face a related new disclosure, Form No. 49, finalised alongside Form No. 48 under the Income Tax Rules, 2026, which captures the enhanced safe harbour disclosure separately rather than folding it into the main report.

What actually happens when a transfer pricing audit notice arrives

A reference to the transfer pricing officer typically follows risk-based selection after the accountant’s report is filed, Form 3CEB for AY 2026-27 and earlier years, Form No. 48 once Tax Year 2026-27 filings begin in 2027, often triggered by a year-on-year drop in operating margin for a routine service provider, a related-party loss in a year the group as a whole was profitable, or a mismatch between the figures in that report and the tax audit report (Clause 14AA of Form 3CD currently, with an equivalent clause expected under the new Act’s audit reporting framework). Once a notice is issued, the taxpayer typically has 30 days to produce the local file and supporting documentation.

This 30-day window is where most of the damage from poor preparation becomes visible. If the FAR analysis, benchmarking study, and supporting agreements already exist in contemporaneous form, the response is a compilation exercise. If they do not exist, the 30 days are spent reconstructing a year-old or two-year-old transaction from invoices, emails, and whatever the accounting team remembers, under a hard deadline, with a chartered accountant unwilling to certify anything that looks freshly manufactured. Founders who have been through this describe it accurately as the single most disruptive four weeks in their company’s compliance calendar.

Non-submission of documentation within the timeline attracts a penalty of 2 percent of the transaction value under Section 271G of the Income-tax Act, 1961, independent of whether the underlying pricing is ultimately found to be at arm’s length. Even where the documentation exists but cannot be produced fast enough, the inability to produce it in time is treated as non-compliance in its own right. Equivalent provisions are carried forward in substance under the Income-tax Act, 2025, though the final renumbering for ongoing assessment years should be confirmed against the latest CBDT notification before relying on it for a specific filing.

Documentation does more than avoid this penalty. Section 271AA carries a built-in immunity: if the taxpayer has maintained the prescribed documentation, the documentation substantiates the method used and the price determined, and the transaction has been reported in Form No. 48, the 2 percent penalty for furnishing incorrect or inadequate information does not apply even if the TPO ultimately makes an adjustment. This is the single strongest reason to invest in a proper file before a notice arrives. A weak or absent file converts an ordinary pricing disagreement into a penalty event. A complete, contemporaneous file converts the worst-case outcome into a tax adjustment that can be contested on merits, with no penalty layered on top.

If the TPO is not satisfied with the documentation produced, the process moves into substantive review: requests for clarification on specific comparables or adjustments, a show-cause notice before any proposed addition, and a draft order giving the taxpayer an opportunity to respond before the order is finalised. The transfer pricing scrutiny order itself has to be passed within 30 months from the end of the relevant assessment year. If an adjustment is confirmed, the taxpayer can appeal to the Commissioner of Income Tax (Appeals), and from there to the Income Tax Appellate Tribunal, with the option of approaching the Dispute Resolution Panel at an earlier stage for cases involving a foreign company or where the TPO proposes a variation to the taxpayer’s return. None of these later stages change what should happen at the documentation stage. A clean, contemporaneous file shortens every step that follows it, because the TPO is reviewing an existing position rather than building the case for an adjustment from scratch.

The Finance Act, 2025 introduced a repeat-transaction mechanism, allowing the arm’s length price determined for one year to be applied to similar international transactions in the following two years, subject to prescribed conditions, reducing the annual re-benchmarking burden for stable, recurring intercompany arrangements. This is genuinely useful for a startup with a steady cost-plus development arrangement, but it only works if the original year’s documentation was built correctly. A poorly supported first year locks in the same weakness for three years instead of one.

Common mistakes that cost founders time and money

Treating the intercompany agreement as a formality. Founders frequently sign a one-page services agreement drafted alongside the Delaware incorporation paperwork, with no pricing schedule, no defined scope, and no method specified. When the TPO asks why the price was set the way it was, there is no document to point to. The fix is a proper intercompany services or licensing agreement, signed before billing starts, with the pricing method and markup stated explicitly.

Billing at a round number with no benchmarking behind it. A 10 percent markup that was chosen because it sounded reasonable, rather than because it sits within a benchmarked range of comparable companies, collapses the moment a TPO runs its own search and finds the market range starts at 12 percent. Every markup or margin figure in a related-party transaction needs a comparables search behind it, however brief, before it is used.

Letting the FAR analysis drift from operational reality. As discussed above, a contract that says one thing while the team does another is a guaranteed recharacterisation risk. This needs an annual check, not a one-time write-up at incorporation, because functions and risk allocation shift as the company scales.

Missing the specified domestic transaction angle during restructuring. Founders moving IP or a business line between two Indian group entities ahead of a funding round frequently assume domestic transactions are outside transfer pricing scope. They are not, once the value crosses the prescribed threshold under Section 162(2), and the penalty for failure to maintain documentation here mirrors the international transaction penalty under Section 271AA, a sum equal to 2 percent of the value of each transaction.

Reconstructing documentation only after the tax audit deadline. This is the most expensive mistake because it is entirely avoidable. Building the Transaction Master Register and FAR write-up as transactions happen, rather than backfilling them in the weeks before the Form No. 48 filing deadline, costs a fraction of what an emergency reconstruction costs once a TPO notice is already in hand.

Case study

Situation: A Series A SaaS founder based in Bengaluru, with an Indian subsidiary billing a Delaware parent for development services on a cost-plus basis, had been operating for eighteen months with no formal transfer pricing documentation.

Challenge: Aggregate intercompany billing had crossed ₹1 crore eight months earlier. The intercompany services agreement had no pricing schedule, the markup applied was an informal 8 percent with no benchmarking behind it, and the previous year’s tax return had been filed without Form 3CEB.

What Treelife did: Built a Transaction Master Register covering all four transaction streams (development services, shared cloud infrastructure reimbursement, an ESOP cross-charge, and a working capital loan), prepared a contemporaneous FAR analysis and benchmarking study supporting a revised 12 percent cost-plus markup, and filed a compounding application alongside the delayed Form 3CEB for the prior year.

Outcome: No transfer pricing adjustment was raised in the subsequent assessment. The delayed filing penalty was resolved through the compounding route at a fraction of the exposure the 2 percent transaction value penalty would have created, and the company has carried the benchmarked margin forward into two further years under the repeat-transaction provisions.

Frequently asked questions

Q: Do early-stage startups below ₹1 crore in intercompany transactions need any transfer pricing documentation at all? A: There is no mandatory local file obligation below the ₹1 crore aggregate threshold under Section 171, but the underlying requirement to price the transaction at arm’s length still applies. A brief internal note recording the pricing rationale is sound practice even below the threshold, since the company will likely cross it within a year or two as billing scales.

Q: How much does a transfer pricing study typically cost for an early-stage startup?
A: Cost depends on the number of transaction streams and the complexity of the benchmarking required. A single intercompany services arrangement with a straightforward cost-plus method is materially cheaper to document than a structure involving IP licensing, multiple associated enterprises, or specified domestic transactions. Advisory fees are generally structured per transaction stream rather than as a flat annual fee.

Q: What is the timeline from setting up an intercompany arrangement to having audit-ready documentation?
A: Ideally, the FAR analysis and benchmarking study should be completed within weeks of the agreement being signed and billing starting, not deferred to year end. A startup that has already been operating without documentation typically needs four to eight weeks to reconstruct a full year’s transactions properly.

Q: What documents make up a complete transfer pricing file?
A: At minimum, the intercompany agreement, the Transaction Master Register, the FAR analysis, the benchmarking study with comparables data, the method selection rationale, and the certified accountant’s report, Form 3CEB for AY 2026-27 and earlier years, Form No. 48 from Tax Year 2026-27 onward. Supporting evidence such as invoices, board approvals, and correspondence on pricing decisions should be retained alongside these for the statutory retention period of eight years from the end of the relevant assessment year or tax year.

Q: How does transfer pricing interact with FEMA obligations for an Indian startup with an overseas subsidiary?
A: The Foreign Exchange Management Act obligation to price an overseas direct investment at arm’s length and the Income Tax Act obligation to maintain arm’s length pricing for intercompany transactions operate independently but must both be satisfied. An AD bank reviewing an outbound remittance and a TPO reviewing the same transaction during assessment can each raise separate questions on the same underlying price.

Q: Do founders need to structure transfer pricing differently for co-founders or family members holding stakes in related entities?
A: Transfer pricing applies based on the associated enterprise relationship, not based on whether the counterparty is a family member. If a co-founder or family member controls a related Indian entity that crosses the specified domestic transaction threshold, the same documentation standard applies regardless of the personal relationship.

Q: Does DPIIT-recognised startup status provide any exemption from transfer pricing documentation?
A: No. DPIIT recognition provides tax holidays and certain compliance relaxations under separate provisions, but it does not exempt a recognised startup from transfer pricing documentation once the threshold for international or specified domestic transactions is crossed.

Q: What happens if a transfer pricing dispute is not resolved and the deal or funding round is already underway?
A: An open transfer pricing assessment or a pending demand is a standard due diligence flag for investors. It does not typically kill a deal on its own, but it can delay closing while the investor’s counsel assesses exposure, and it sometimes results in an indemnity or escrow holdback tied to the eventual outcome.

Q: Can a startup use an Advance Pricing Agreement to avoid future transfer pricing disputes?
A: Yes. Sections 168 and 169 of the Income-tax Act, 2025 formalise India’s Advance Pricing Agreement programme, allowing a taxpayer to agree the pricing methodology for covered transactions in advance with the Central Board of Direct Taxes. This is more commonly used for high-value or recurring transactions and complex intangibles than for a single early-stage services arrangement, given the time and cost involved in negotiating an APA.

Q: What is the difference between the local file and the master file?
A: The local file documents the specific entity’s transactions, functional analysis, and benchmarking. The master file provides a group-wide overview of the multinational enterprise’s global business, intangibles, and intercompany financing arrangements, and only applies where the group’s consolidated revenue crosses the prescribed threshold, generally well above what an early-stage Indian startup would have.

Q: I keep seeing both Form 3CEB and Form No. 48 mentioned. Which one applies to me right now?
A: Income earned in FY 2025-26 is assessed as AY 2026-27 under the Income-tax Act, 1961, and that return, with Form 3CEB, is what is currently due. The Income-tax Act, 2025 and Form No. 48 apply to income earned from 1 April 2026 onward, assessed as Tax Year 2026-27, with the first Form No. 48 filing due only in 2027. Section 536 of the Income-tax Act, 2025 is the repeal and savings clause that keeps the old Act operative for AY 2026-27 and earlier years, including pending proceedings, while the new Act governs everything from Tax Year 2026-27 onward. Practically, this means the documentation discipline in this article should already be applied to your live transactions, even though the form you will eventually use to report them is a year away from its first filing.

Common mistakes summary

This section deliberately repeats nothing already covered above. If you have read the article in order, the documentation checklist below is the only artefact you need to act on next.

• Sign or update the intercompany agreement with an explicit pricing method and markup before the next billing cycle
• Build a Transaction Master Register covering every transaction stream with the foreign parent or related Indian entity
• Run a comparables search and document the benchmarking range before year end, not after
• Confirm whether your transactions fit within the revised IT services safe harbour band before committing to a full TNMM study
• Check the current year’s CBDT tolerance band notification before assuming the prior year’s percentage still applies
• Verify the AE relationship code and transaction IDs are correctly mapped ahead of the Form No. 48 filing

Regulatory references

• Income-tax Act, 2025: Section 161 (arm’s length principle), Section 162 (associated enterprise), Section 163 (international transaction), Section 167 (safe harbour), Sections 168 to 169 (advance pricing agreement), Section 171 (documentation), Section 172 (accountant’s report), Section 536 (repeal and savings, governing the transition from the 1961 Act)
• Income-tax Act, 1961 (currently applicable to AY 2026-27 and earlier years): Sections 92 to 92F, Section 271AA, Section 271BA, Section 271G, Section 144C (Dispute Resolution Panel)
• Income Tax Rules, 1962: Rule 10D (local file particulars under the 1961 Act, currently applicable)
• Income Tax Rules, 2026 (notified 20 March 2026, effective 1 April 2026): Rule 84 (documentation), Rule 85 (Form No. 48), revised safe harbour rules and Form No. 49
• Form 3CEB (Section 92E, Income-tax Act, 1961), currently due for AY 2026-27; Form No. 48 (Section 172, Income-tax Act, 2025), first due for Tax Year 2026-27 filings in 2027
• CBDT Notification No. 157/2025, dated 06/11/2025 (tolerance band for AY 2025-26)
• Finance Act, 2025 (repeat-transaction and block assessment mechanism)
• Companies Act, 2013, Section 188 (board and audit committee approval for related-party transactions)
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 23 (shareholder approval for material related-party transactions, listed entities)
• Foreign Exchange Management (Overseas Investment) Rules, 2022, Rule 19 (arm’s length pricing for overseas direct investment)

External sources

• Income Tax Department, Transfer Pricing
• Income Tax Department, Form No. 48 FAQs
• Ministry of Corporate Affairs
• SEBI
• Reserve Bank of India