Section 92E of Income Tax Act

Section 92E of the Income Tax Act requires businesses involved in international or specified domestic transactions to get a report from a chartered accountant. This report must be submitted in Form 3CEB when filing their tax returns. These transactions must involve at least two Associated Enterprises (AEs), with one or more of the parties being a non-resident of India.
Understanding Section 92E of the Income Tax Act, 1961
3 min
18-November-2024

The rules laid down under Section 92E of Income Tax Act stand mandatory for entities that take part in international or certain specified domestic transactions. The Section 92E rules apply to associated enterprises. There are certain criteria as per which their transactions fall under the above-mentioned categories. If you own a multinational business that operates in India, it is important for you to be aware of the rules and regulations under Section 92E, so that you can file the returns. This article will help you understand what Section 92E is, different kinds of transactions, the penalties associated with Section 92E, and more.

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.

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.

Who is required to file under Section 92E?

Taxpayers engaged in international transactions or specified domestic transactions with related parties are required to file the transfer pricing report. This includes entities such as companies, firms, or other business organisations that have financial dealings with their affiliates, subsidiaries, or other related parties. The section applies to both domestic and foreign transactions.

Submission of Form 3CEB

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.

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.

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.

On another note, if you are interested in investing in mutual funds, you should explore the Mutual Fund Schemes available on the Bajaj Finserv Mutual Fund Platform. With over 1,000 options to choose from, you will find a wide variety of funds to match your financial goals. Additionally, you can compare mutual funds and utilise the Mutual Fund Calculator to identify the best options tailored to your needs.

Frequently asked questions

Who needs to comply with Section 92E?
If you are involved in international or specified domestic transactions, you must obtain a report from a chartered accountant and file it using Form 3CEB, and comply with Section 92E.

What is the purpose of Section 92E?
Section 92E ensures that your transactions comply with transfer pricing regulations by requiring you to report them and confirm they align with arm's length pricing.

What is the threshold for transactions under Section 92E?
The threshold is Rs. 20 crore. If your transactions exceed this limit, you must adhere to transfer pricing regulations for both international and specified domestic transactions.

What is the due date for filing the report under Section 92E?
You must file the report under Section 92E by 30th November, which is the same as the due date for filing your income tax return.

What details must be included in the report under Section 92E?
You need to include details of your international and specified domestic transactions, such as nature, value, and compliance with transfer pricing rules.

Who is authorized to prepare the report under Section 92E?
A chartered accountant is authorised to prepare and certify your report under Section 92E.

What happens if a taxpayer fails to comply with Section 92E?
If you fail to comply with Section 92E, you may face penalties under Section 271BA, which includes a fine of Rs. 1 lakh.

Can the report under Section 92E be revised or amended?
Yes, you can revise or amend your report under Section 92E before the due date for filing your income tax return.

Are there any exemptions from filing a report under Section 92E?
There are no specific exemptions; if you are involved in relevant transactions, you must comply with Section 92E requirements.

How does Section 92E impact transfer pricing?
Section 92E ensures your compliance with transfer pricing regulations, helping you align your transactions with arm's length pricing to avoid penalties.

Show More Show Less

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-qualified limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

Disclaimer:


Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.

This information should not be relied upon as the sole basis for any investment decisions.Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Show All Text

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.

Show All Text