Budget widens ambit of transfer pricing, enhances power of officers to pick domestic cases

The budget has proposed to widen the transfer pricing provision, extending it to even some domestic transactions.

It has also enhanced the power of the transfer pricing officers, who will now be able to pick specified domestic cases for a closer look.

The direct impact of this change would be on new manufacturing entities availing of the concessional tax regime.


The Indian transfer pricing regulations require all international transactions and certain categories of specified domestic related-party transactions to be referred to transfer pricing officers for scrutiny. After this amendment, the officers will be empowered to pick up such cases for scrutiny on their own.

"This is a clarificatory amendment as some of the provisions were already there," revenue secretary Sanjay Malhotra told ET.

“The provisions are intended to permit transfer pricing officers to assess un-reported domestic related-party transactions during transfer pricing assessments,” said Amit Agarwal, partner-transfer pricing, Nangia Andersen.

Experts said the proposed change would help in avoiding any unwanted dispute between taxpayers and tax authorities during audits and in bringing the provisions in respect of international transactions and specified domestic transactions at par.

“The legislation has built-in provisions to discourage abuse of the beneficial tax regime due to overstating profits in the tax exempt, tax incentivised unit and company by ‘closely connected persons’ which result in more than ordinary profits,” said Fatema Hunaid, partner, Grant Thornton Bharat.

“We expect the impacted companies to be even more judicious while interpreting the phrase ‘closely connected persons’ and be cautious in upfront identifying and reporting such transactions as SDTs (specified domestic transactions) proactively to avoid adjustments and penalties, especially where profitability is higher than the industry peers,” Hunaid added