What are the basic transfer pricing obligations for an Indian subsidiary of a foreign company?

Many foreign companies serve India-linked work through an Indian subsidiary: for example, a US software company with a development centre in Bengaluru, a UK agency with a design team in Pune, or a Singapore consultancy with an analytics unit in Gurugram. The subsidiary usually bills its parent for services, often on a cost-plus basis. Because the two companies are related, Indian tax law requires the price to be what unrelated parties would agree, and requires specific reports and records each year.¹

This page covers only the basic obligations under the Income-tax Act, 2025, which applies from tax year 2026-27 (1 April 2026 onwards). Transfer pricing is a specialist area; benchmarking, safe harbour, advance pricing agreements and disputes are outside this page, and you should work with a chartered accountant (CA) who handles transfer pricing.¹

What is transfer pricing for an Indian subsidiary?

Transfer pricing for an Indian subsidiary is the rule that income from international transactions with associated enterprises, such as its foreign parent, must be determined having regard to the arm's length price. Section 161 says any income arising from an international transaction or a specified domestic transaction must be determined having regard to the arm's length price, and the same applies to any allowance for expense or interest.¹

The key definitions are:¹

These definitions decide whether a transaction is in scope at all.

Which Indian companies do the transfer pricing rules apply to?

The transfer pricing rules apply to any person that enters into an international transaction with an associated enterprise, so an Indian subsidiary providing software development, design, marketing support or back-office services to its foreign parent is covered.¹

Section 172 sets no minimum transaction value for the report: any international transaction in the year brings it in.¹

How does an Indian subsidiary meet its transfer pricing obligations?

An Indian subsidiary meets its transfer pricing obligations by pricing each international transaction at arm's length, keeping the rule 84 records, and furnishing Form 48 one month before the return due date.¹²

1. Identify associated enterprises and transactions: list each international transaction, such as services billed to the foreign parent.¹
2. Determine the arm's length price: use one of the methods listed in section 165.¹
3. Keep the documentation: keep the information and documents listed in rule 84, unless international transactions total ₹1 crore or less.²
4. Obtain and furnish Form 48: get the accountant's report and furnish it by 31 October 2027 for tax year 2026-27.²⁴
5. File the return: by 30 November 2027, the due date where section 172 applies.⁴

The choice of method and comparables is the core of the annual transfer pricing study.

What documents and deadlines apply to transfer pricing?

Transfer pricing needs Form 48 by one month before the return due date, which is 31 October 2027 for tax year 2026-27, and the rule 84 documentation where international transactions exceed ₹1 crore.²⁴

Form No. 48 is the accountant's report on international transactions and specified domestic transactions, and replaces Form 3CEB. Section 172 says every person who has entered into an international transaction or specified domestic transaction during a tax year must obtain a report from an accountant and furnish it by the specified date in the prescribed form.¹ Rule 85 of the Income-tax Rules, 2026 prescribes Form No. 48 and requires it to be furnished at least one month before the due date for the return under section 263(1)(c).² The CBDT navigator maps rule 85 to the old rule 10E.³

• Rule 84 records: section 171 requires every person who enters into an international transaction or specified domestic transaction to keep and maintain the prescribed information and documents.¹ Rule 84 lists them, including information and data on the associated enterprise relevant to determining the arm's length price.² Expect to keep the ownership structure, a description of the business, the terms and value of each transaction, and the workings behind the price. Rule 84 replaces rule 10D.³
• ₹1 crore exemption: rule 84(2) exempts an assessee from keeping this detailed documentation where the aggregate value of its international transactions, as recorded in the books, does not exceed ₹1 crore in the tax year. The assessee must still be able to show, from available material, that its income from those transactions was computed under section 161.²

Start the documentation during the year so the accountant can sign Form 48 on time.¹²

What happens if an Indian subsidiary misses its transfer pricing obligations?

An Indian subsidiary that misses its transfer pricing obligations faces a fee for a late Form 48, a penalty for documents not furnished when asked, and recomputed income if the price is not at arm's length.¹⁴

• Report not furnished: from 1 April 2026, section 447 (the old penalty for not furnishing the report) is omitted. Section 428(d), as substituted by the Finance Act, 2026, charges a fee of ₹50,000 for a delay up to one month and ₹1,00,000 after that.¹⁴
• Documents not furnished when asked: section 457 allows a penalty of 2% of the value of the transaction for each failure.¹
• Adjustment: if the price is not at arm's length, income is recomputed under section 161, which can increase tax.¹
• Reference: if the tax officer considers it necessary, the case can be referred to a Transfer Pricing Officer under section 166.¹

Agree the pricing policy with the parent before the year starts to reduce the risk of an adjustment.

How is the arm's length price calculated for a service subsidiary?

The arm's length price is calculated using one of the methods listed in section 165 of the Income-tax Act, 2025.¹ For a typical service subsidiary, the CA will compare the subsidiary's margin on costs with margins earned by comparable independent companies.

• Method: chosen from the section 165 list.¹
• Comparables: independent companies doing similar work.
• Result: if the subsidiary's price differs from the arm's length price, income is recomputed under section 161.¹

For example, a development centre billing its parent on a cost-plus basis would compare its mark-up on costs with the margins of comparable independent service companies. The exact method and comparables depend on the facts, so this page does not suggest a mark-up.

Does transfer pricing affect GST and FEMA treatment for a subsidiary?

Transfer pricing interacts with GST and FEMA treatment for a subsidiary but does not replace either. For GST, CBIC Circular 161/17/2021-GST says a subsidiary supplying services to its foreign parent is not merely an establishment of a distinct person, so the supply can qualify as an export if the other conditions are met.⁵ Payments from the parent still follow the foreign exchange rules for exports; see receiving payment from a foreign parent company.

What are the common mistakes with transfer pricing for Indian subsidiaries?

The most common mistake is reading the ₹1 crore documentation exemption as an exemption from Form 48, when section 172 sets no minimum value for the report.¹²

• Using the old 3CEB deadline: for tax year 2026-27, Form 48 is due by 31 October 2027.²⁴
• Citing section 447: it is omitted from 1 April 2026; the fee is in section 428(d).¹⁴
• Treating a branch like a subsidiary for GST: a branch supplying its head office is an establishment of a distinct person.⁵
• Keeping no records below ₹1 crore: the subsidiary must still be able to show its income was computed under section 161.²

Work with a CA who handles transfer pricing for anything beyond these basics.