What is transfer pricing, and why does it apply to you?
Transfer pricing rules govern the prices your Indian company uses when it deals with related enterprises abroad, most often the parent. The principle is that the price should be the one independent parties would have agreed. The tax authority can test that price, so you need evidence for it.
An Indian subsidiary usually has such transactions from its first year: it charges the parent for services, or the parent recharges shared costs to it. That makes transfer pricing an incorporation-stage issue, not a later tidy-up.
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and periods from FY 2026-27 are called a “tax year”. For FY 2025-26 and earlier, the 1961 Act continues to apply to the year concerned, so check which Act governs the year you are reporting.
Which transactions usually fall in scope?
| Transaction | Typical example | Pricing question |
|---|---|---|
| Services to the parent | Back-office, engineering or support work for a captive centre | What margin over cost is appropriate? |
| Services from the parent | Management, technology or shared-service recharges | Did the subsidiary receive a real benefit, and is the allocation fair? |
| Royalties and licences | Software, brand or know-how licences | What rate would an independent party pay? |
| Intercompany loans | Parent funding for working capital | What interest rate applies? |
| Goods | Purchase from or sale to a group company | What price would an independent buyer or seller accept? |
For a GCC, the services-to-parent line is usually the largest. Many captives are remunerated on a cost-plus basis, but the right method depends on the functions, assets and risks in the centre. See captive versus build-operate-transfer for how the structure affects this.
What is Form 48?
Form 48 is the accountant’s report under section 172 of the Income-tax Act, 2025. It replaces the report that older material calls Form 3CEB. A Chartered Accountant files it after examining the company’s international and specified domestic transactions.
The report is mandatory for every person with an international transaction or a specified domestic transaction in the year. There is no monetary threshold for the form itself, so even a modest recharge from the parent brings the company within it.
The report is due one month before the due date of the company’s tax return. The company return is due on 31 October, or 30 November where a section 172 report is required, so Form 48 falls due on 31 October.
What documentation should you keep?
Keep the evidence that supports each price before you need it:
- A signed intercompany agreement that describes the service, the price and the payment terms.
- A description of who performs which functions, uses which assets and bears which risks.
- A benchmarking study that compares your price or margin with independent companies.
- Invoices, timesheets or cost allocation records that show the price was charged as agreed.
What about payments to the parent?
Payments from the subsidiary to the parent can carry withholding tax, and a double taxation agreement may reduce the rate. Under the Income-tax Act, 2025, withholding provisions have been consolidated, and treaty relief needs a tax residency certificate and a supplementary declaration in Form 41. Treaty rates depend on the country and on the type of payment, so check your parent’s country page, such as Singapore.
What mistakes should you avoid?
- Invoicing without an agreement. A price with no written basis is hard to defend later. Sign first, then invoice.
- Treating the parent’s recharge as automatic. Management or technology charges from the parent need evidence that the subsidiary received a service and benefited from it.
- Ignoring small flows. Because Form 48 has no monetary threshold for the form itself, even modest intercompany flows count.
- Leaving the analysis to year end. Benchmarking done months after the transaction is harder to complete and to support.
How do you prepare, step by step?
- Map every related-party flow when you design the structure.
- Sign intercompany agreements before the first invoice.
- Commission a benchmarking study for material flows.
- Invoice and settle in line with the agreement and the FEMA rules; see FEMA filings.
- Close the books, prepare the documentation and have a CA sign Form 48 before the due date.
- Add the dates to your annual compliance calendar.
ProLead’s chartered accountants handle these steps with clients under our accounting, tax and compliance service. If you already know your intercompany flows, book a free consultation and we will review them.
Note: Rules and forms change often. This page is general information, not legal or tax advice. Check the current position with a practising Chartered Accountant or Company Secretary before you act.
Frequently asked questions
Does my Indian subsidiary need a transfer pricing report?
When is Form 48 due?
Is Form 48 the same as Form 3CEB?
Which transactions with my parent are usually covered?
Sources
General information only, not legal or tax advice. Rules and forms change, so confirm the current position with a practising Chartered Accountant or Company Secretary before you act. See our disclaimer.