Transfer Pricing Documentation in India for FY 2025-26 — Section 92E & Form 3CEB Guide
Indian companies with international transactions exceeding ₹1 Cr must file Form 3CEB (a CA-certified transfer pricing report) under Section 92E before 31 October 2026. This guide covers the five prescribed methods, documentation standards, and the penalty structure for non-compliance.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Indian companies that enter into international transactions with associated enterprises — or specified domestic transactions above ₹20 Cr — must comply with the transfer pricing (TP) provisions under Sections 92 to 92F of the Income Tax Act, 1961. For FY 2025-26, the Form 3CEB due date is 31 October 2026.
This guide covers the five TP methods, documentation requirements, the arm's length standard, and the penalty exposure that makes non-compliance expensive.
The Statutory Basis
Transfer pricing in India is governed by Sections 92 to 92F of the Income Tax Act, 1961, inserted by the Finance Act 2001. The rules are in Income Tax Rules 10A to 10THD, including the recently introduced safe harbour provisions.
Section 92C requires that prices in international transactions between associated enterprises be at arm's length — the price that would apply between independent parties in comparable circumstances.
Section 92E mandates a report in Form 3CEB from a Chartered Accountant (not just any CA — a practising CA) for every company that has entered into international transactions during the year. This applies even if the transaction is a single rupee in value.
Section 92D requires that every entity maintaining contemporaneous documentation — the TP study — retain it for 8 years from the end of the relevant assessment year.
The Five Prescribed Methods
Rule 10B prescribes five methods for determining the arm's length price:
In practice, TNMM is used in over 85% of Indian TP cases because of the difficulty of finding CUP comparables and the wide availability of TNMM database comparables (Prowess, Capitaline, TP Catalyst).
A sixth method — Other Method (Rule 10AB) — allows any method that reliably determines the arm's length price, used in cases where none of the five prescribed methods apply (e.g., valuation of shares in cross-border transactions).
Documentation: What Your TP Study Must Contain
Under Rule 10D, contemporaneous documentation must be prepared before filing the return (i.e., before 31 October 2026 for FY 2025-26). It must include:
- Description of the enterprise and its group
- Nature and terms of the international transaction
- Description of the functions performed, assets employed, and risks assumed (FAR analysis)
- Economic and market conditions analysis
- Selection of the most appropriate method and reasons for rejection of other methods
- Comparables selected, with details of adjustments made
- Determination of the arm's length price or range
For companies with consolidated group revenue exceeding ₹5,000 Cr, Country-by-Country Reporting (CbCR) under Section 286 and a Master File under Section 92D(4) are additionally required.
The Arm's Length Range
If the arm's length price falls within the arm's length range — the 35th to 65th percentile of the dataset of comparables — no adjustment is required. If your transaction price falls outside this range, the price is adjusted to the median (50th percentile).
The range was introduced to replace the earlier arithmetic mean, reducing the scope of arbitrary adjustments. However, Assessing Officers often challenge the comparability of the dataset — which is why robust comparables analysis and proper adjustments for differences in working capital, geography, and business model are critical.
Form 3CEB — What Gets Reported
Form 3CEB, certified by a practising CA, must disclose:
- Nature and value of each international transaction
- Method applied and reason for selection
- The arm's length price determined
- Whether any variation exists between the transaction price and the arm's length price
The Form is filed through the income tax portal as part of the tax audit package. The certifying CA must independently verify the documentation — they cannot simply rely on management representations.
A Worked Example: IT Services Company, Hyderabad
A ₹45 Cr IT services company in Hyderabad has two international transactions:
- Software development services to its US parent: ₹38 Cr
- Reimbursement of group management charges: ₹3.2 Cr
For the software development services, TNMM is applied. The comparables set (sourced from Prowess) shows an operating margin range of 14%–22% (35th–65th percentile). The company's operating margin is 18.4% — within range. No adjustment required.
For management charges, the CUP method is attempted but no comparable is available. TNMM is applied at the entity level. The 5% mark-up applied is benchmarked against service recipients in comparable arrangements. Documented and defensible.
Total Form 3CEB: two transactions, both at arm's length, no adjustment, filed before 31 October.
The Penalty Structure
The 200% penalty under Section 270A for under-reporting is particularly severe — it applies to the tax on the TP adjustment, not just the adjustment amount. On a ₹5 Cr adjustment at 25% tax, the penalty is ₹2.5 Cr.
Safe Harbour Rules — When Documentation Can Be Simplified
Rules 10TD–10THD provide safe harbour rates for certain transactions where, if the pricing is within the specified range, the transfer price is accepted without scrutiny:
- IT/ITeS services to associated enterprises: 17–18% operating margin (based on employee cost ratio)
- Knowledge Process Outsourcing: 24% operating margin
- Contract R&D (software): 24% operating margin
- Intra-group loans (in rupees): SBI MCLR + 150 basis points
- Intra-group loans (in foreign currency): 6-month LIBOR + 300 basis points
Safe harbour elections are made in Form 3CEFA and are valid for up to 5 years. For companies whose transactions fall squarely within these categories, safe harbour eliminates both the documentation burden and litigation risk.
How HRA Handles Transfer Pricing
Our TP practice covers documentation, Form 3CEB certification, safe harbour analysis, and representation before the Transfer Pricing Officer (TPO) in case of scrutiny. We use Prowess and TP Catalyst for comparable searches and apply working capital adjustments using the Chebyshev distance method.
See our Direct Tax & International Tax services →
Frequently Asked Questions
Q: Is transfer pricing applicable to domestic transactions?
Yes — specified domestic transactions (SDTs) above ₹20 Cr between related domestic parties in certain situations (Section 40A(2), Sections 80-IA, 80-IC, etc.) are also subject to TP provisions under Section 92BA.
Q: What is the due date for filing Form 3CEB for FY 2025-26?
31 October 2026. This is also the extended due date for filing the income tax return for companies with international transactions.
Q: Can the same CA who does the statutory audit certify Form 3CEB?
Yes — Section 92E requires certification by a practising CA. The statutory auditor or any other practising CA can certify Form 3CEB.
Q: What is an Advance Pricing Agreement (APA)?
An APA is a binding agreement between a taxpayer and the CBDT on the transfer pricing methodology to be applied for future years. India has bilateral APAs with the US, UK, Japan, and other DTAA partners. APAs provide certainty and eliminate TP litigation for the agreed period (up to 5 future years + 4 rollback years).
Q: What happens if CBDT makes a TP adjustment?
The taxpayer can appeal to the Commissioner (Appeals), then the ITAT, and thereafter to the High Court and Supreme Court. CBDT also has a Dispute Resolution Panel (DRP) mechanism for TP cases, which provides a faster alternative to the CIT(A) track.
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Prepared by Harun Raaj & Associates, Chartered Accountants. For transfer pricing documentation and Form 3CEB certification, contact our team.
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See Also
Frequently Asked Questions
What is the deadline for filing Form 3CEB for FY 2025-26 transfer pricing documentation in India?+
The Form 3CEB due date for FY 2025-26 is 31 October 2026, as specified in Section 92E of the Income Tax Act, 1961. Section 92E mandates that every company entering into international transactions during the year must file this report from a practising Chartered Accountant.
Which transfer pricing method is most commonly used in India and why?+
The Transactional Net Margin Method (TNMM) is used in over 85% of Indian TP cases, as stated in the article. TNMM is preferred because of the difficulty in finding Comparable Uncontrolled Price (CUP) comparables and the wide availability of TNMM database comparables through sources like Prowess, Capitaline, and TP Catalyst.
What documentation retention period is required for transfer pricing studies under Indian tax law?+
Section 92D of the Income Tax Act, 1961 requires that contemporaneous documentation (the TP study) be retained for 8 years from the end of the relevant assessment year. This applies to every entity maintaining such documentation for international transactions.
What is the arm's length standard defined as under Section 92C of the Indian Income Tax Act?+
Section 92C defines the arm's length standard as the price that would apply between independent parties in comparable circumstances. This standard applies to all international transactions between associated enterprises to ensure transfer pricing compliance.
Which Indian companies are required to file Form 3CEB and what triggers this requirement?+
Per Section 92E, every company that has entered into international transactions with associated enterprises during the year must file Form 3CEB from a practising Chartered Accountant. This requirement applies even if the transaction value is a single rupee. Additionally, specified domestic transactions above ₹20 Cr must also comply with transfer pricing provisions under Sections 92 to 92F.
What are the five prescribed transfer pricing methods under Indian tax rules and which method is best for manufacturing?+
Rule 10B prescribes five methods: Comparable Uncontrolled Price (CUP) for commodity transactions; Resale Price Method (RPM) for distribution without significant value addition; Cost Plus Method (CPM) for manufacturing and contract R&D; Profit Split Method (PSM) for highly integrated operations; and Transactional Net Margin Method (TNMM) for services and software. The Cost Plus Method (CPM) is specified as best suited for manufacturing and intra-group services.
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