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Domestic Transfer Pricing

Yogesh Thar
Anjali Agrawal Chartered Accountants
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1. Introduction
The Domestic Transfer Pricing Regulations were introduced in India by the Finance Act, 2012 with effect from the Assessment Year 2013-14. The amendment has been brought in basically by amending Chapter X of the Income-tax Act, 1961 (“the Act”) whereby the applicability of the international transfer pricing provisions has been extended to certain domestic transactions between specified related parties referred to as the ‘Specified Domestic Transactions’ (“SDTs”). Corresponding amendments have also been brought in the specific provisions of the Act – i.e. sections 40A(2), 80A(6), 80IA(8) and 80IA(10). Thus, with effect from the Financial Year 2012-13, the SDTs are subject to the transfer pricing provisions, which hitherto, were applicable only to international transactions and accordingly, a new concept of ‘Domestic Transfer Pricing’ (“DTP”) has been introduced in India. The DTP regulations essentially provide for a mechanism to determine the arm’s length price (ALP) in cases of SDTs, require the assessees to maintain information and documents supporting the ALP of such transactions as also obtain and file an accountant’s report in respect of such transactions along with the return of income. The DTP regulation does not apply to small assessees, since a monetary limit of Rs. 5 crores has been set in respect of the SDTs for the DTP provisions to apply.

1.2. Hence, an assessee who undertakes SDTs during a financial year, aggregating in value by more than Rs. 5 crore, would require to comply with the following:

ensure that the value of such transactions is at arm’s length price having regard to the methods prescribed under the Act;

maintain and keep information and documents in relation to such transactions as statutorily required;

obtain and file an accountant’s report in respect of such transactions along with his return of income.

1.3. Genesis of th...


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