India’s Transfer Pricing Framework — A Structural Reset in 2026
Transfer Pricing (TP) compliance in India underwent its most significant overhaul since 2001 when the Central Board of Direct Taxes (CBDT) notified the final Income Tax Rules, 2026 on 20 March 2026, effective from 1 April 2026 under the newly enacted Income-tax Act, 2025. These rules restructure India’s entire TP compliance framework — from the accountant’s report format to safe harbour margins to assessment procedures.
Every Indian company with international transactions with Associated Enterprises (AEs) — regardless of revenue size — must reassess its transfer pricing strategy and documentation approach for AY 2026-27 (FY 2025-26) before the filing deadline of 31 October 2026.
What Is Transfer Pricing and When Does It Apply?
Transfer pricing rules require that transactions between Associated Enterprises — entities with a qualifying relationship such as common management, ownership, or control — be conducted at ‘arm’s length’ prices. In simple terms, the price charged in an inter-company transaction must be the same as what independent parties would have charged for the same transaction in the open market.
Transfer Pricing applies to Indian companies when:
- The Indian entity has a parent, subsidiary, JV, or associate entity overseas (or in India in case of specified domestic transactions)
- The relationship meets the ‘Associated Enterprise’ definition — including 26%+ shareholding, common board control, financial dependence, or management overlap
- The parties engage in any qualifying international transaction — including sales of goods or services, IP licensing, management fees, intra-group loans, guarantees, or cost-sharing arrangements
There is no minimum revenue threshold for TP applicability — it applies from the first rupee of international transaction with an AE. The threshold for mandatory documentation (currently equivalent to USD 1.25 million or ₹1 crore) is separate from the TP applicability threshold.
Form 48 — The New Transfer Pricing Accountant’s Report
The most immediate change for AY 2026-27 is the replacement of Form 3CEB — the CA’s report on international transactions that has been filed since 2001 — with the new Form 48. This is not merely a renaming exercise. Form 48 introduces significantly enhanced disclosure requirements, including:
- Detailed characterisation of digital and platform economy transactions — with specific disclosure requirements under new OECD-aligned definitions of digital services
- Breakdown of management fees and intra-group service charges by function, cost base, and mark-up at the individual transaction level
- Expanded DEMPE function analysis for intangible-related transactions — Development, Enhancement, Maintenance, Protection, and Exploitation of intangibles
- Interest rate benchmarking for financial transactions with mandatory reference to published Reference Rates plus spread disclosure
- Source country and substance disclosures for treaty-benefit linked payments — aligning with BEPS Action 5 and PPT requirements under the MLI
| Filing Deadline for Form 48
Form 48 must be filed by 31 October 2026 for AY 2026-27. Companies should begin their documentation review for FY 2025-26 transactions immediately — waiting until August-September leaves insufficient time to conduct benchmarking studies, obtain comparables data, and prepare the enhanced disclosures required under the new format. |
The New Safe Harbour Rules — Major Relief for IT Companies
Budget 2026 introduced the most significant reforms to India’s Safe Harbour regime since the programme’s inception in 2013. Under Safe Harbour, companies that meet the prescribed profit margins in eligible transaction categories are automatically accepted by the tax authorities — without any arm’s length price determination or scrutiny.
The key changes effective AY 2026-27:
| Parameter | Old Safe Harbour (Pre-2026) | New Safe Harbour (AY 2026-27 onwards) |
| IT Services Categories | Multiple sub-categories (IT, ITeS, KPO, Software R&D) with different margins | Single unified ‘IT Services’ category |
| Safe Harbour Margin | 17%–24% (varied by sub-category) | Uniform 15.5% on operating expenses |
| Transaction Threshold | ₹300 crore (approx. USD 33 million) | ₹2,000 crore (approx. USD 230 million) |
| APA Timeline (IT services) | ~45 months average | 2 years (fast-tracked under Budget 2026) |
| New Categories | Not available | Data Centres: 15% on cost; Component Warehousing: 2% of invoice |
| Block Period | Annual election | 5-year block option for IT services |
Block Transfer Pricing Assessments — The New Multi-Year Risk
The introduction of Block TP Assessments is one of the most strategically significant changes for companies with ongoing intra-group transactions. Under the new framework, the Transfer Pricing Officer (TPO) can now conduct a single assessment covering multiple years — typically 3-5 assessment years — in a single proceeding.
The financial impact is substantial. A 2% TP adjustment on ₹500 crore of annual intra-group transactions generates a tax demand of approximately ₹5 crore per year. A 5-year block assessment of the same adjustment generates a single demand of ₹25 crore — before interest under Sections 234A/B/C and potential penalties under Section 270A for misreporting.
Companies that are most exposed to block assessment risk include those with: (a) undocumented management fee arrangements; (b) intra-group loans without benchmarked interest rates; (c) IP licensing arrangements without robust DEMPE analysis; and (d) cost-sharing arrangements across jurisdictions.
Advance Pricing Agreements — Now Fast-Tracked for IT Companies
India’s Advance Pricing Agreement (APA) programme — which provides bilateral or unilateral certainty on TP positions for up to 5 future years — has been significantly enhanced under Budget 2026. Unilateral APAs for IT service companies will now be concluded within 2 years from application, down from the prior average of 45 months. This makes APAs a genuinely practical certainty tool rather than a theoretical option.
Given the introduction of block assessments and enhanced Form 48 disclosures, companies with significant annual intra-group transaction volumes should seriously consider filing Unilateral APA applications for AY 2026-27 onwards. The certainty provided by an APA is a meaningful shield against block assessment risk.
| 📞 Talk to SilverSix Consultant
SilverSix Consultant provides end-to-end Transfer Pricing advisory — from transaction benchmarking and Form 48 documentation to Safe Harbour election and APA filing support. Contact us today: [contact@silversixconsultant.com] | [+91 XXXXX XXXXX] |