Domestic Transfer Pricing in India – Rules, Methods & Compliance

Domestic Transfer Pricing (DTP) is an essential aspect of corporate taxation that ensures transactions between related parties within India are conducted at an arm’s length price. While international transfer pricing is well-known, domestic transfer pricing has gained importance following the introduction of Section 92BA under the Income Tax Act, 1961.

In this guide, we will cover the concept, rules, methods, compliance requirements, and practical aspects of domestic transfer pricing in India, along with FAQs.

What is Domestic Transfer Pricing?

Domestic Transfer Pricing refers to the pricing of goods, services, or intangibles between related parties within India to ensure that such transactions are not used to manipulate taxable profits.

Key points:

• It applies to transactions between domestic associated enterprises (related parties within India).

• Governed by Section 92BA of the Income Tax Act, 1961.

• Ensures fair taxation and prevents tax base erosion through related-party transactions.

Applicability of Domestic Transfer Pricing

Domestic transfer pricing provisions are applicable if:

• A domestic transaction occurs between associated enterprises.

• The aggregate value of transactions exceeds ₹20 crores in a financial year.

• Transactions are not at arm’s length, which could lead to tax adjustments.

Examples of Domestic Transactions:

• Sale of goods between parent company and subsidiary in India

• Provision of services between related entities

• Licensing or sale of intangibles

• Reimbursement of expenses among related parties

Key Features of Domestic Transfer Pricing

• Scope: Limited to domestic related-party transactions.

• Threshold Limit: ₹20 crores per year for applicability.

• Methods: Arm’s length price (ALP) must be computed using recognized methods.

• Documentation: Companies must maintain proper TP documentation to justify pricing.

Arm’s Length Price (ALP)

Arm’s Length Price is the price that would be charged if the transaction occurred between unrelated parties under similar conditions.

Common Methods to Determine ALP:

• Comparable Uncontrolled Price (CUP) Method – Compare with similar transactions between unrelated parties.

• Resale Price Method (RPM) – Used for resale of goods or services with a margin.

• Cost Plus Method (CPM) – Adds an appropriate markup to the cost of goods/services.

• Profit Split Method – Allocates combined profit among related parties.

• Transactional Net Margin Method (TNMM) – Analyzes net profit margin compared to comparable uncontrolled transactions.

Compliance Requirements

Companies subject to domestic transfer pricing provisions must:

• Maintain Documentation – Transaction details, pricing method, and comparables.

• Report in Income Tax Return – Specify the nature, amount, and ALP of domestic transactions.

• Audit TP Compliance – Tax authorities may scrutinize ALP determination.

Key Documents to Maintain:

• Related-party agreements

• Transaction invoices and contracts

• Cost and revenue analysis

• Benchmarking reports

Importance of Domestic Transfer Pricing

For Businesses:

• Ensures compliance with Income Tax provisions.

• Reduces the risk of tax adjustments and penalties.

• Provides transparency in related-party transactions.

• Helps in strategic pricing and internal auditing.

For Tax Authorities:

• Prevents profit shifting within India.

• Ensures equitable taxation among companies.

• Enhances transparency in corporate taxation.

Challenges in Domestic Transfer Pricing

• Identifying comparable uncontrolled transactions within India.

• Determining ALP for intangibles or unique services.

• Maintaining adequate documentation for compliance.

• Handling related-party disputes in pricing.

How YKG Global Can Help

At YKG Global, we provide end-to-end advisory and compliance solutions for domestic transfer pricing. Our services include:

•  Identifying domestic related-party transactions

•  Determining arm’s length price (ALP) using standard TP methods

•  Preparing and maintaining transfer pricing documentation

•  Filing compliance reports with the Income Tax Department

•  Strategic guidance to optimize tax and maintain regulatory compliance

With extensive experience in transfer pricing and taxation, YKG Global ensures that your business adheres to all domestic TP rules while minimizing tax risks.

📧 Email: Rishi@ykgglobal.com
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