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Transfer Pricing Documentation: A Practical Checklist for Indian CFOs

CA Gorantla ButchibabuSenior Partner, Cogent Professionals10 February 202511 min read
CFO reviewing transfer pricing documentation on laptop

Transfer Pricing (TP) in India is governed by Sections 92 to 92F of the Income Tax Act, supported by Rules 10A to 10THD of the Income Tax Rules. The CBDT has adopted a three-tier documentation structure aligned with the OECD BEPS Action Plan 13.

Non-compliance penalties are severe: 2% of the transaction value for non-maintenance of documentation, and 50% of under-reported income as penalty.


Who Must Comply?

Transfer pricing documentation is required for:

Transaction TypeThreshold
International transactions (with associated enterprises outside India)If transaction value > ₹1 crore
Specified domestic transactions (SDT) (related-party domestic)If transaction value > ₹20 crore
Secondary adjustments (Section 92CE)Where primary adjustment > ₹1 crore

Associated Enterprise (AE) as defined in Section 92A — includes parent, subsidiary, sister company, any entity with 26%+ voting control or board influence.


The Three-Tier Documentation Structure

Tier 1: Master File (Form 3CEAD)

Provides a global overview of the multinational group:

  • Group structure and ownership chart
  • Description of global business
  • List of all intangibles held by group entities
  • Inter-company financing arrangements
  • Consolidated financial statements
  • Country-by-Country report (if global turnover > ₹5,500 crore)

Who must file: Indian entity belonging to a group with global turnover > ₹5,500 crore must file Form 3CEAD by November 30 annually.

Tier 2: Local File (Form 3CEB)

Most commonly required — the India-specific TP documentation:

  • Description of the Indian entity and industry
  • Description of each international transaction / SDT
  • Functional analysis (functions, assets, risks — the FAR analysis)
  • Transfer pricing method selected and why
  • Benchmarking analysis (comparable uncontrolled price, cost-plus, TNMM, etc.)
  • Arm's length range computation

Auditor certification: Form 3CEB must be certified by a Practicing Chartered Accountant and is due one month before the ITR filing deadline (typically October 31 for companies requiring audit).

Form 3CEB must be filed with the ITR-6. Filing ITR without Form 3CEB when it is required is treated as a defective filing, and the penalty for non-maintenance and non-reporting begins from the return due date.

Tier 3: Country-by-Country Report (CbCR — Form 3CEAA, 3CEAB, 3CEAC)

Required only for groups with consolidated global turnover > ₹5,500 crore (approximately €750 million), which is OECD's threshold for CbCR applicability. Indian entities in such groups must:

  • File CbCR notification in Form 3CEAA by the due date of ITR
  • File actual CbCR in Form 3CEAC if Indian parent is the ultimate parent

Common Transaction Types That Need TP Analysis

TransactionCommon TP Issue
Loans to/from foreign AEInterest rate (compare with market rate; thin cap rules apply)
Management fee to holding companyBenefit test — must demonstrate actual benefit received
Royalty for brand / technologyRoyalty rate — comparable license agreements needed
Software services to parentTNMM benchmarking required; operating margin range
Purchase of goods from foreign AECUP or comparable price analysis
Guarantee feeCommission rate benchmark
Back-office / ITeS to parentTNMM; tested entity analysis

Key TP Methods and When to Use Them

MethodBest Suited For
CUP (Comparable Uncontrolled Price)Commodity transactions, loans, quoted securities
Cost PlusManufacturing, software development services
Resale PriceDistribution companies
TNMM (Transactional Net Margin Method)IT/ITeS, back-office, most service companies
PS (Profit Split)Transfers of intangibles; unique contributions

In practice, TNMM is the most commonly used method in India for services, with benchmarking using TP databases like CRISIL, Capitaline, or Prowess.


Functional Analysis (FAR): The Foundation of TP

The FAR analysis — Functions, Assets, Risks — is the bedrock of any valid TP documentation. It must answer:

  • Functions: What does each entity actually DO (manufacturing, R&D, distribution, support, management)?
  • Assets: What tangible and intangible assets does each entity own, use, or develop?
  • Risks: What business risks does each entity bear (market risk, credit risk, currency risk, R&D failure risk)?

The entity that performs more significant functions, owns more assets, and bears more risks should earn higher returns. If the Indian entity provides only routine services but is bearing significant risks, the TP structure may be challenged.


TP Scrutiny by CBDT: What They Look For

Indian TP assessments under Section 92CA are conducted by Transfer Pricing Officers (TPOs). Common adjustments:

  1. Low or no royalty for brand usage — CBDT routinely imputes royalty when Indian entity uses foreign brand but pays nothing
  2. Management fee rejected — If benefit test is not clearly documented, management fee deduction is disallowed
  3. Loan interest below market rate — CBDT uses SBI MCLR + spread as reference; below-market interest triggers income imputation
  4. Intra-group services — Shareholder activity (i.e., costs incurred by parent for its own benefit) recharged to Indian subsidiary is challenged

Advance Pricing Agreements (APAs)

For certainty on TP methodology, companies can apply for an APA with CBDT:

  • Unilateral APA — India only; certainty on Indian tax treatment
  • Bilateral APA — India + one treaty partner; avoids double taxation
  • Multilateral APA — India + multiple treaty partners

APA processes take 2–4 years but provide 5-year certainty plus "rollback" to 4 prior years.

Does your company have related-party transactions?

Our international tax team prepares Form 3CEB certifications, FAR analyses, and benchmarking studies — with APA application support.

Talk to Our TP Team
Transfer PricingRelated Party TransactionsCBDTInternational TaxCFOTP Documentation