Section 92E of the Income Tax Act lays down mandatory compliance requirements for entities involved in international transactions or specified domestic transactions with associated enterprises. These provisions apply when transactions meet the conditions prescribed under transfer pricing regulations. Businesses, particularly multinational companies operating in India, must understand the requirements of Section 92E to ensure accurate reporting and timely tax compliance. Failure to comply may result in penalties and other regulatory consequences. Understanding the scope of Section 92E, the types of covered transactions, documentation requirements, and related penalties can help businesses meet their obligations effectively and avoid unnecessary tax disputes.
What is section 92E of income tax act?
Section 92E of the Income Tax Act pertains to the requirement for taxpayers engaged in international or specified domestic transactions to obtain a transfer pricing report from an accountant. This section ensures that transactions between related entities are conducted at arm’s length prices and are compliant with the tax regulations in India. The report must detail the transfer pricing policies, methods, and financial transactions conducted between related parties during the financial year.
Any taxpayer who has entered into international transactions or specified domestic transactions, as defined under the Income Tax Act, is required to file the transfer pricing report. This includes companies, firms, or any other business entities that deal with related parties. The report must be submitted to the Income Tax Department in Form 3CEB by the specified due date to avoid penalties. This ensures transparency and compliance with transfer pricing regulations and helps prevent tax avoidance through mispricing of transactions between related entities.
What is the meaning of international transactions as per section 92B?
The meaning of international transaction as per Section 92B can be defined as a transaction which fulfils the conditions written below:
- A transaction that is done between two or more enterprises
- A transaction wherein at least one enterprise is a non-resident of India
Additionally, the nature of an international transaction has to be of:
- Sales, lease, or a purchase of an intangible or tangible property, or lending or borrowing money, or provision of services
- A mutual agreement or arrangement between more than two associated enterprises, wherein the terms of the transaction are pre-determined just as the cost allocation
On another note, do not forget to check out the new income tax slab rates, and keep up with the new rules introduced.
What is the meaning of associated enterprises as per section 92A?
Your enterprise could be termed an associated enterprise as per Section 92A if:
- You are involved in an enterprise where the same people participate in administration, control, or capital, either directly, indirectly, or through intermediaries, as they do in another similar enterprise.
- Your company controls at least 26% of the voting power in another company, whether directly or indirectly.
- A person or business owns, either directly or indirectly, 26% of the voting power in both businesses.
- Your company has provided a loan to another company, which represents at least 51% of the other company’s total assets' book value.
- Your company guarantees at least 10% of the total borrowings of another company.
- You have the authority to appoint more than half of the board of directors or one or more executive directors in both businesses.
- The same person or persons can appoint more than 50% of the directors or members of the governing board, or one or more executive directors or members of the governing board.
- Your company’s business is entirely dependent on the know-how, copyright, patent, or secret formula of another company.
- The other enterprise supplies 90% or more of the raw materials and consumables required by your enterprise.
- The products or articles produced by your company are sold to another company, with prices and other terms influenced by that company.
- If an individual controls your business, that individual also controls the other business, either directly, indirectly through a relative, or jointly with their relative.
- Your company owns at least 10% of another company, such as a partnership firm, an AOP, or a BOI.
- There is a mutual interest link between your business and another business.
What is the meaning of specified domestic transactions as per section 92BA?
Previously, transfer pricing laws were only applicable to cross-border transactions. However, the Finance Act of 2012 expanded the scope to include certain domestic transactions involving related parties within the country. Here is a breakdown of which transactions are now classified as specified domestic transactions:
- Any transaction mentioned under section 80A.
- Any transfer of goods or services referred to under section 80-IA(8).
- Any business conducted between you and a third party as defined in section 80-IA(10).
- Any transaction covered under any other section of Chapter VI-A or section 10AA, subject to the provisions of section 80-IA(8)/(10).
- Any business conducted between the individuals listed in section 115 BAB(4).
- Any other transactions that may be deemed necessary.
These transactions become significant when your total specified domestic transactions in the previous year exceed the prescribed amount of Rs. 20 crore. If this threshold is surpassed, you will be required to comply with transfer pricing requirements for all transactions, regardless of the individual transaction values.
Applicability and compliance requirements under Section 92E
- Applies to all taxpayers engaged in international or specified domestic transactions with associated enterprises.
- Requires obtaining a transfer pricing audit report from a Chartered Accountant and submitting it in Form 3CEB by the due date.
- Due date for filing Form 3CEB is generally 30 November following the end of the financial year (e.g., 30 November 2025 for AY 2025-26).
- Non-compliance attracts a penalty of Rs. 1,00,000 under Section 271BA.
- As per Section 92(3), transactions that increase losses or reduce income tax liability are exempt from Section 92E compliance.
- The Finance Act, 2009 introduced safe harbour rules allowing declared transfer prices to be accepted under certain conditions, applicable to some domestic transactions.
Provisions of Section 92E
Section 92E of the Income Tax Act mandates that any taxpayer involved in international or specified domestic transactions must file a transfer pricing report with the tax authorities. This provision ensures that such transactions are carried out at arm's length prices, in accordance with the fair market value, preventing tax evasion or avoidance. The report must be submitted in Form 3CEB, and failure to do so within the prescribed deadline can result in penalties.
Documentation requirements (Rule 10D) for Section 92E compliance
- MNC group profile with tax residence details.
- Ownership structure of associated enterprises.
- Details of services and property transferred.
- Terms and nature of transactions.
- Industry and business descriptions.
- Records of uncontrolled transactions.
- Functional and risk analysis.
- Methodology and data used to determine the arm’s length price.
- Transfer price adjustments.
Who is required to file under Section 92E?
The applicability of Section 92E of the Income Tax Act includes:
- Companies or individuals engaged in international transactions with associated enterprises.
- Taxpayers undertaking specified domestic transactions exceeding Rs. 20 crore during a financial year.
- Any person seeking to minimise disputes and ensure compliance with arm’s length pricing regulations.
Whether you are a small exporter or a large multinational organisation involved in inter-company transactions, it is important to assess the applicability of Section 92E of the Income Tax Act. Reviewing these requirements helps ensure compliance with transfer pricing provisions, maintain accurate documentation, and reduce the risk of penalties or disputes with the tax authorities.
How to submit Form 3CEB for Section 92E?
The report must be submitted in Form 3CEB, which is a certification by an accountant detailing the arm’s length nature of the transactions. This form must be filed within the specified due date, typically along with the income tax return for the relevant assessment year, to ensure compliance.
Penalties for non-compliance
Failure to file the required report within the prescribed deadline attracts penalties under the Income Tax Act. The penalty for non-compliance can range from Rs. 1,00,000 to higher amounts, depending on the severity of the breach.
Section 92E of Income Tax Act Filing Deadlines
The filing deadline for Section 92E of the Income Tax Act is the same as the due date for filing the income tax return under Section 139(1), which typically falls on 30th November for companies. Any delay in submitting the Form 3CEB attracts penalties as per the Income Tax Act.
Importance of Section 92E
The filing deadline for Section 92E of the Income Tax Act is aligned with the due date for filing the income tax return under Section 139(1). For companies, this due date generally falls on 30th November of the assessment year. This means that businesses engaged in international or specified domestic transactions with related parties must submit their transfer pricing report in Form 3CEB by this date.
Form 3CEB is a certification by an accountant that confirms the transactions between related entities were conducted at arm’s length. The report ensures compliance with transfer pricing regulations to prevent tax avoidance.
Failure to submit Form 3CEB within the specified deadline can result in significant penalties. These penalties may range from Rs.1,00,000 to higher amounts, depending on the extent of the delay or non-compliance. Therefore, it is crucial for taxpayers to adhere to the filing deadline to avoid financial consequences.
What is the penalty for not furnishing a report u/s 92E?
If you fail to submit the required report, you will be held liable and may face penalties. Section 271BA specifically addresses the penalties for not furnishing the report mandated under Section 92E. Under Section 271BA, a fine of Rs. 1 lakh can be imposed on you if you fail to provide a report from an accountant as required by Section 92E. Additionally, Section 271AA imposes a penalty if you fail to maintain and keep the necessary information and documents related to international transactions. These sections cover the penalty provisions for international transactions in general.
Why is a report under Section 92E necessary?
A report under Section 92E of the Income Tax Act, 1961 is required to ensure that international transactions comply with transfer pricing regulations. It serves as proof that such transactions are conducted at arm’s length, helping prevent price manipulation and tax avoidance.
This requirement is especially relevant for:
- Subsidiaries of foreign companies
- Indian companies with overseas joint ventures
- Businesses involved in related party transactions
Guidance note on report under section 92e of the Income Tax Act 1961
The Guidance Note on Report Under Section 92E of the Income Tax Act 1961 provides detailed instructions for preparing and submitting the transfer pricing report in Form 3CEB. It is issued by the Institute of Chartered Accountants of India (ICAI) to assist taxpayers and professionals in complying with the requirements of Section 92E. The guidance note outlines the responsibilities of the accountant in verifying and certifying the arm's length nature of international and specified domestic transactions between related parties, ensuring that the transactions align with transfer pricing provisions.
The note also elaborates on the format and content of the report, including the necessary disclosures and information required to be furnished. This includes details about the taxpayer, their related parties, the nature of the transactions, and the method used for determining arm’s length prices. It also provides clarity on the documentation and records that must be maintained to support the report. The guidance note aims to simplify the filing process and ensure compliance with transfer pricing regulations.
Who is liable for audit under Section 92E?
Section 92E of the Income Tax Act applies to Associated Enterprises (AEs) involved in international and specified domestic transactions. Businesses can be classified as AEs if they meet any of the following conditions:
- Individuals participate in the management, control, or capital of another enterprise, either directly, indirectly, or through intermediaries.
- One enterprise holds at least 26% of the voting power in another enterprise, directly or indirectly.
- A person or business holds at least 26% voting power in both enterprises, directly or indirectly.
- Loans provided by one enterprise account for at least 51% of the total book value of the other enterprise’s assets.
- One enterprise guarantees at least 10% of the total borrowings of another enterprise.
- An individual has the authority to appoint one or more executive directors or more than 50% of the directors in each enterprise.
- The same individual appoints one or more executive directors, governing board members, or more than half of the directors in both enterprises.
- One enterprise’s business is wholly dependent on the patents, copyrights, secret formulas, or technical know-how of another enterprise.
- One enterprise supplies 90% or more of the raw materials or consumables required by another enterprise.
- Goods produced by one enterprise are sold to another enterprise, which determines the pricing and sale conditions.
- Both enterprises are controlled by the same individual, either directly, indirectly, or jointly with a relative.
- One enterprise holds at least a 10% interest in another entity, such as a partnership firm, AOP, or BOI.
- There is a mutual interest relationship between the two enterprises.
Due date for filing under Section 92E
The due date for filing Form 3CEB under Section 92E is one month before the due date for filing the income tax return under Section 139(1). For example, if the due date for filing your income tax return is 31 October, Form 3CEB must be submitted by 30 September.
It is important to remember the Section 92E due date under the Income Tax Act, as failure to file Form 3CEB within the prescribed time may result in penalties. Filing the form on time helps ensure compliance with transfer pricing regulations and avoids unnecessary legal or financial consequences.
Steps to ensure compliance with section 92E
Determine applicability of Section 92E
Assess whether your business has engaged in international or specified domestic transactions with related parties. If so, the transfer pricing report in Form 3CEB is mandatory.
Maintain accurate documentation
Keep detailed records of all international and specified domestic transactions, including agreements, invoices, and pricing methodologies. This will help demonstrate that the transactions were conducted at arm’s length.
Hire a qualified accountant
Engage a qualified accountant who is well-versed with transfer pricing regulations. The accountant will be responsible for certifying the arm’s length nature of the transactions in Form 3CEB.
Prepare Form 3CEB
Complete the transfer pricing report in the prescribed format of Form 3CEB. Include all necessary details such as related party information, transaction nature, pricing method, and supporting documents.
File Form 3CEB on time
Submit the completed Form 3CEB by the due date, typically aligned with the income tax return deadline, usually by 30th September for companies.
Review and audit compliance
Regularly review your transfer pricing documentation and ensure it complies with the regulations. Audit your related party transactions to ensure they align with the prescribed arm’s length pricing method.
Monitor penalties for non-compliance
Be aware of the penalties for late filing or non-compliance with Section 92E. Timely submission helps avoid financial consequences.
Conclusion
To conclude, Section 92E of Income Tax Act, 1961, mandates that anyone involved in international or specified domestic transactions must obtain and submit an audit report from a chartered accountant. The section's provisions cover transactions involving at least two Account Executives, one of whom must be a non-resident. Additionally, as outlined in Section 92BA, these requirements extend to specified domestic transactions, ensuring comprehensive compliance across both international and domestic dealings.
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