Transfer pricing applicability

Start with relationships and transactions

Transfer pricing assesses covered international transactions and specified domestic transactions using the arm’s-length principle. Do not assume that every related-party entry is covered, or that a small transaction has no reporting implications.

Prepare an entity chart and transaction inventory before applying thresholds or documentation exceptions. Ownership is only part of the relationship analysis; examine control and other statutory association tests.

Build a complete transaction inventory

• Goods, services, royalties and other intellectual-property arrangements.
• Loans, guarantees, financing terms and outstanding balances requiring assessment.
• Cost allocations, reimbursements and shared-service arrangements.
• Business restructuring and transfers of functions, assets or risks.
• Arrangements involving another party where associated enterprises determine the substance of the terms.

Select the correct period’s framework

Income for Tax Year 2026–27 falls under the Income-tax Act, 2025; earlier periods and their continuing proceedings require the relevant transition analysis. Use the forms, rules and deadlines applicable to the actual reporting period.

An old section number or prior-year report can help locate the history but should not be copied as the current legal conclusion. Record the applicable provision and any change in facts.

Support how the price was determined

Describe the functions performed, assets used and risks assumed by each party. Select and explain the appropriate pricing method and comparable evidence. Reconcile the tested financial information to the accounts and document material adjustments.

A group policy stating a standard markup is not, by itself, a completed local analysis. The evidence should explain why the method and outcome fit the actual transaction.

Separate pricing, documentation and reporting

Assess the arm’s-length obligation, prescribed documentation and accountant reporting separately. Review master-file and country-by-country obligations where relevant to the group; their thresholds and scope are distinct from the basic transaction assessment.

If a documentation relaxation applies, retain the evidence supporting that conclusion and check what obligations remain. Do not infer a blanket exemption from a single threshold.

Prepare the working file

• Ownership and control chart, agreements and transaction ledger.
• Invoices, cost allocation keys and evidence that services were delivered.
• Functional analysis, segmental accounts and reconciliations.
• Method-selection note, comparable data and adjustment calculations.
• Prior filings, notices, pricing agreements and relevant changes in the business.

Example: a shared-service recharge

An overseas group company charges an Indian entity for support services. The Indian entity should identify the relationship and transaction, establish the services and benefit received, reconcile the cost pool and allocation, and assess the pricing. An invoice labelled reimbursement does not answer all of those questions.

Set a review and reporting timetable

Confirm the required report, sign-off and filing dates for the period. Collect group information early enough to resolve missing evidence before reporting. Preserve submission acknowledgements and the version of the analysis supporting the filed figures.

Review safe-harbour, advance-pricing or dispute-resolution options only against their specific conditions. None should be treated as automatic protection for a pricing policy.