Transfer Pricing in India for CA Students – Complete 2025 Guide
Introduction to Transfer Pricing in India
Transfer pricing in India is not just a tax concept anymore—it’s a regulatory cornerstone for multinational and domestic enterprises dealing in intercompany transactions.
In this guide, we break down what transfer pricing means, how the rules apply in India, methods to calculate the arm’s length price (ALP), documentation essentials, and the latest updates that every stakeholder should know.
What is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, or intangibles transferred between associated enterprises (AEs). In India, it ensures that cross-border and certain domestic transactions are priced fairly and taxed appropriately, avoiding income shifting and tax base erosion.
Why does it matter?
Prevents profit shifting to low-tax jurisdictions
Ensures fair taxation of intercompany transactions
Required for Form 3CEB filing and tax audit compliance
Transfer Pricing Laws in India
Indian transfer pricing regulations are primarily governed by Sections 92 to 92F of the Income Tax Act, 1961, along with relevant rules under the Income Tax Rules, 1962.
Key Concepts:
Associated Enterprise (AE): Two entities are AEs if there is participation in management, control, or capital.
International Transactions: Dealings between Indian entities and foreign AEs.
Specified Domestic Transactions (SDTs): Covered if aggregate exceeds ₹20 crore, including inter-unit transactions under section 80IA.
Methods for Computing Arm’s Length Price (ALP)
India recognizes six methods for ALP determination under Rule 10B:
Comparable Uncontrolled Price (CUP) Method
Best when identical goods/services are traded.
Example: A company exports software to AE and third parties.
Resale Price Method (RPM)
Applied where goods are purchased from an AE and resold.
Common for distributors.
Cost Plus Method (CPM)
Suitable for manufacturing setups or contract R&D.
Used when cost structures are easily identifiable.
Transactional Net Margin Method (TNMM)
Most widely used; compares net margins.
Ideal when product comparability is low.
Profit Split Method (PSM)
For integrated operations with joint IPs or unique intangibles.
Other Method
Any method that fits the arm’s length principle better.
Example: Quotation-based pricing.
Transfer Pricing Documentation Requirements
Proper documentation is crucial to avoid penalties and facilitate audit defence.
Mandatory Components:
Local File (Rule 10D)
Functional, economic, and benchmarking analysis
Master File (Form 3CEAA)
Required for global group revenue > ₹500 crore
Country-by-Country Report (CbCR – Form 3CEAD)
Filed if global consolidated revenue > ₹6,400 crore
Form 3CEB Filing India:
Due date: October 31 (with tax audit)
Filed electronically, signed by a CA
Contains details of international/SDT transactions
Key Changes in 2025 – Block Period Approach
India’s transfer pricing regime now adopts a block period benchmarking rule for FY 2024-25 onwards.
What’s New?
ALP benchmarking can be done for three-year periods, allowing more stable pricing comparisons.
This helps reduce volatility in ALP computation year-on-year.
Example:
If a software export company uses TNMM for FY 2024-25, it can rely on average margins from FY 2023 to FY 2025, if justified with comparables.
This change improves compliance predictability but also increases responsibility to monitor TP strategy over multiple years.
Practical Guide for CA Students & Interns
If you’re preparing for your CA Final or working on TP files during your articleship, this section is tailored for you.
Sample ALP Calculation:
A BPO provides services to its US parent. Using TNMM:
Operating Profit: ₹12 crore
Total Cost: ₹100 crore
Margin = 12%
If comparable margins = 11%–13%, ALP is met.
Local File Checklist:
Entity structure & group overview
Functional, asset, risk (FAR) analysis
Comparable analysis with filters
Economic analysis justifying the ALP
Mock Q&A:
Q: What’s the preferred method for contract manufacturing?
A: Cost Plus Method or TNMM, based on comparability.
Conclusion
With increased scrutiny, annual audits, and evolving global standards, transfer pricing in India is no longer optional—it’s foundational. The 2025 shift to block period benchmarking and revised safe harbour rules mean that timely compliance, accurate documentation, and strategic planning are vital.
Whether you’re a CA aspirant, a CFO navigating cross-border transactions, or a finance professional preparing Form 3CEB, staying current with these updates ensures peace of mind—and prevents costly penalties.