31 Oct
Transfer Pricing Compliance Guidelines for Fiscal Year 2022-23 (Assessment Year 2023-24)
Transfer pricing involves establishing prices for transactions between entities within the same multinational conglomerate. The Income Tax Act of India, dating back to 1961, incorporates regulations concerning transfer pricing to ensure equitable and transparent pricing. Businesses operating in India are obligated to adhere to these rules, necessitating the completion of specific activities within specified deadlines in accordance with the regulations.
Transfer Pricing
Transfer pricing is the practice of establishing the prices for goods, services, or intangible assets exchanged between affiliated entities within a multinational corporation. In India, these transfer pricing guidelines are outlined in Section 92 of the Income Tax Act and the Income Tax Rules of 1962. The primary aim is to ascertain fair market prices for these transactions, ensuring the equitable allocation of profits and the accurate payment of taxes in India.
Why Transfer Pricing Compliance is important in India?
Adhering to transfer pricing regulations in India is of paramount significance for multinational enterprises conducting business in the nation. Such compliance aids in the avoidance of penalties, tax-related disputes, and potential damage to their reputation while simultaneously cultivating a positive rapport with tax authorities. Through strict adherence to the stipulated regulations and the meticulous upkeep of precise documentation, businesses can showcase their dedication to transparent and equitable pricing practices.
Transfer Pricing Compliance Roadmap for the Financial Year 2022-23 (Assessment Year 2023-24)
For the purpose of aiding businesses in adhering to the Transfer Pricing regulations stipulated within the Indian Income Tax Act of 1961 for the fiscal year 2022-23 (Assessment Year, AY 2023-24), an extensive Transfer Pricing Compliance Guide has been formulated. This guide encompasses the following key components:
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- Detailed instructions on the necessary actions to be carried out.
- Pertinent legal sections for reference.
- Essential form numbers for documentation.
- Specified deadlines that entities are required to meet to ensure compliance.
Activity | Section | Form No. | Deadline |
Transfer Pricing Audit | 92E | 3CEB | 31-Oct-2023 |
Transfer Pricing Documentation | 92D | â | 31-Oct-2023 |
Return of Income (with Transfer Pricing Provisions) | 139 | â | 30-Nov-2023 |
Master File | 92D (4) | 3CEAA | 30-Nov-2023 |
Intimation by Designated Constituent Entity (DCE) | 92D (4) | 3CEAB | 31-Oct-2023 |
Intimation by DCE | 286 (1) | 3CEAC | Two months before the due date for furnishing of CbCR-Form |
Country-by-Country Reporting (CbCR) | 286 (2) | 3CEAD | One year from the end of reporting Accounting year (i.e., 30-Dec-2023) |
Audit Report (with Transfer Pricing Provisions) | 44AB | â | 31-Oct-2023 |
Safe Harbour Application for International Transactions | 92CB | 3CEFA | 30-Nov-2023 |
Safe Harbour Application for Specified Domestic Transactions | 92CB | 3CEFB | 30-Nov-2023 |
Companies can evade penalties and showcase their dedication to ethical business conduct by adhering to the specified deadlines.
Key Activities and Deadlines
The main activities and due dates are explained below:
Transfer Pricing Audit:
Under Section 92E of the Income Tax Act, companies must undergo a transfer pricing audit. This involves reviewing and documenting their transfer pricing policies and transactions with related parties. The deadline to file Form 3CEB, which gives details of the audit, is October 31, 2023.
Transfer Pricing Documents:
Section 92D requires companies to maintain documents that prove their transactions were done at fair market prices. These documents must be ready by October 31, 2023.
Income Tax Return (with Transfer Pricing):
Companies that follow transfer pricing rules must file income tax returns under Section 139. The deadline is November 30, 2023.
Master File:
Companies meeting the criteria in Section 92D(4) and Rule 10DA must prepare and submit a Master File using Form 3CEAA. The deadline is November 30, 2023.
Intimation by Designated Constituent Entity (DCE):
Section 92D(4) and Rule 10DA say that designated companies must file Form 3CEAB by October 31, 2023.
Intimation by DCE:
Under Section 286(1) and Rule 10DB, companies must give information about the corporate group structure by filing Form 3CEAC two months before submitting the Country-by-Country Report.
Country-by-Country Report(CbCR):
Section 286(2) and (4), and Rule 10DB require companies to file Form 3CEAD for country-by-country reporting. The deadline is 12 months from the end of the accounting year, which is December 30, 2023.
Note:
Accounting Year refers to:
- The previous year for companies with parent entities in India.
- The annual accounting period for companies whose parent entities follow accounting standards or laws of their resident country.
- Reporting Accounting Year is the accounting year for which financial and operational results must be included in the report under sub-section (2) and (4).
Penalties for Non-Compliance
Not following India’s transfer pricing rules can lead to fines and problems for companies. The Income Tax Department can impose penalties from 100% to 300% of the under-reported income due to transfer pricing adjustments. Therefore, companies must comply with the regulations to avoid penalties and risks.
