🎯 Overview
In a landmark move under the Income‑tax Act, the Central Board of Direct Taxes (CBDT) has repealed the domestic transfer pricing (DTP) provisions that governed specified domestic transactions between related parties. These provisions were part of a regime introduced more than a decade ago, intended to plug revenue leakage due to intra-group pricing distortions within India.
The repeal effectively removes Section 92BA and related Rules that treated certain intra‑company dealings—such as services, purchases, sales, finance transactions—as subject to transfer pricing scrutiny if parties were “associated enterprises.” The change is seen as a bold step to reduce compliance burden for purely domestic group transactions and align domestic entities more clearly with international guidelines that focus on cross-border pricing.
Section 92BA of the Income‑tax Act (Specified Domestic Transactions): Required domestic groups to benchmark certain inter-company transactions to arm’s length pricing.
Rules under Rule 10AA–10AD of the Income-tax Rules, 1962: Procedural mechanism for documentation, reporting, safe harbour and reference to the Transfer Pricing Officer (TPO) for specified domestic transactions.
These domestic TP rules were originally introduced in an effort to control profit shifting within India, especially where cross-subsidies could affect tax revenue. With the repeal now in force, taxpayers will no longer need to maintain separate documentation or comply with benchmarking requirements for affiliated domestic transactions.
Initial introduction: The domestic TP regime emerged in Budget 2021‑22 as part of a global‑style transfer pricing framework, extending the arm’s length principle to certain domestic transactions.
Purpose: To curb profit shifting, curb undervaluation or overcharging between related Indian entities, and reinforce fairness in domestic taxation.
Mechanism: Under Section 92BA, any domestic transaction—like provision of services, inter-company loans, guarantee fees, purchases, or support services—between related parties had to be benchmarked using transfer pricing methods. Documents, accountants’ reports (Form 3CEB), and TPO reference could be involved.
But over time, administrative concerns grew. Taxpayers and advisors flagged the duplication of compliance already covered by audit, accounting standards, and international TP for multi‑nationals. The outcomes were limited revenue gains weighed against high compliance cost.
Repeal Notification Issued: CBDT has formally issued a notification (gazetted in mid‑July 2025) aligning with provisions of the Income Tax Act, 2025, effectively abrogating Section 92BA and associated rules for transactions occurring on or after April 1, 2025.
Effective Date: Financial Year 2025‑26 (i.e., Assessment Year 2026‑27) onwards—domestic specified transactions are no longer within the TP regime.
No Grandfathering: Existing specified domestic transactions in prior years remain subject to previous rules and assessments.
Transitional Harmony: CBDT has clarified that no adverse assessments will be made in AY 2025‑26 where documentation was diligently maintained in earlier years.
This reform forms part of the broader Taxation Simplification Agenda under the new umbrella income‑tax code, which seeks to streamline, consolidate and rationalize slabs, terminology, compliance and thresholds.
Domestic transfer pricing meant group companies within India had to manage annual benchmarking, accountant’s certification, extensive documentation, and possible TPO scrutiny—all for internal transactions that had no cross-border tax spillover.
Global norms focus transfer pricing rules on cross-border transactions, where profit shifting is more prevalent. Domestic-only transfer pricing enforcement lacked global precedent and led to divergence.
Though intended to prevent misuse within domestic groups, the actual tax yield from domestic TP adjustments remained modest, while compliance, litigation, and administration costs were high.
The Income Tax Act, 2025 introduced a fresh “tax year” concept, removed certain outdated structures (like “previous year”, “assessment year”) and aimed to compress the statute. Repealing domestic TP rules reduced clutter and redundancy.
No more Section 92BA: No requirement to maintain documentation for specified domestic related-party transactions.
Cost savings: Eliminates accountant’s reports, benchmarking studies, and TPO references for such transactions.
Greater certainty: Domestic group dealings no longer attract transfer pricing risks.
Refocused audit: Inspection can focus on international transfer pricing and cross-border profit shifting, high-value international transactions, or misuse of safe harbour provisions.
Lean operations: TPO workloads for domestic issues reduce, as remote benchmarking and disputes fade.
International transactions still governed by Section 92A‑92F, including arm’s length pricing, reporting under Section 92E, documentation, and TPO procedures.
Safe Harbour Rules, tolerance ranges, APA programs apply only for cross-border/ international dealings.
Even as domestic TP fades, CBDT remains active on broader TP reforms:
Safe Harbour Rules extended to AY 2025‑26 & 2026‑27, with threshold for eligible services raised and extended to sectors such as lithium‑ion battery manufacture for EVs.
Tolerance ranges for international and specified domestic transactions remained at 1% for wholesale trading and 3% for all other cases in AY 2024‑25.
Multi‑year ALP option under Section 92CA introduced: taxpayers can opt for a fixed arm’s length price for two subsequent years to reduce repetitive benchmarking.
Let’s illustrate with colourful hypothetical snapshots:
Group A‑Ltd. Group: A chain of three entities—manufacturing, logistics, shared services—all in India. Previously, inter-company services required benchmarking and Form 3CEB. From FY 2025‑26 onwards, that disappears. More ease, lower costs.
Retail Trader B‑Group: Bulk purchase and sale segments across states. Domestic TP invoked for guarantee fees, interest, etc. Post-repeal, these charges are back to normal tax assessment procedures, without TP compliance.
Multinational M‑Co: Indian subsidiary sells components to foreign parent and also to its Indian sister concern. Now only the cross-border transaction needs TP compliance; the domestic sale need not be benchmarked.
This means administrative simplification and lower risk for purely domestic inter-company deals.
While full formal reactions are pending, industry experts and chartered accountant forums reflect wide approval:
Domestic business filings become simpler.
CA and accounting professionals note reduced audit scope: “No more repetitive benchmarking for internal Indian services.”
Sellers of services say compliance cost for internal group support functions drops dramatically.
Observers link the repeal to the broader intention behind the Taxpayer’s Charter and tax certainty agenda embedded in the new Tax Act.
Though widely welcomed, certain safeguards remain:
Section 92E filing & audit report requirement still applies for international or specified domestic transactions in years before repeal.
Advance Pricing Agreements (APAs) will still govern international pricing and may impact domestic pricing indirectly if documented to parent entities.
Related party definitions remain under Section 40A and corporate/ accounting law; tax officers may still examine pricing under general provisions (e.g., Section 14A, Section 37).
| Period / Transaction Type | Prior to April 1, 2025 | From April 1, 2025 Onwards |
|---|---|---|
| Specified Domestic Transactions (SDT) | Benchmarking + documentation under Section 92BA & TP Rules | No transfer pricing rules apply |
| Accountant’s Report (Form 3CEB) | Mandatory for SDT | Not required for domestic group transactions |
| TPO Reference & Assessment | Possible for SDT | Not applicable for domestic-only entities |
| International Transactions | Governed by Sections 92–92F & documentation rules | Still fully governed by TP rules |
| Multi-year ALP option | Not available | Available for international transactions |
| Safe Harbour applicability | For select international services | Extended through AY 2026‑27 |
The CBDT’s repeal of domestic transfer pricing provisions marks a pivotal shift in India’s tax policy—refocusing transfer pricing enforcement purely on transactions that impact international profit shifting. It's a bold simplification, offering substantial relief to domestic businesses burdened by compliance without corresponding fiscal benefit.