Any Indian entity that has entered into an international transaction with an associated enterprise as defined under Section 92A of the Income Tax Act, 1961 is required to comply with transfer pricing provisions. This includes Indian subsidiaries of foreign multinationals, Indian holding companies with overseas subsidiaries, joint ventures with foreign partners, and companies providing or receiving services, loans, royalties, or goods from related overseas entities. Specified domestic transactions between related parties exceeding ₹20 crore are also covered.
Form 3CEB is a mandatory Accountant's Report under Section 92E of the Income Tax Act, 1961, certified by a practising Chartered Accountant. It discloses the nature, value, pricing method, and arm's length characterisation of all international transactions and specified domestic transactions undertaken with associated enterprises during the financial year. Filing is required annually by the prescribed due date the same as the Income Tax Return due date for taxpayers subject to transfer pricing irrespective of whether any tax adjustment is anticipated.
The Income Tax Act prescribes specific penalties for transfer pricing failures. A penalty of 2% of the value of each international or specified domestic transaction applies where the taxpayer fails to maintain required documentation or furnishes incorrect information. Failure to file Form 3CEB attracts a penalty of ₹1,00,000 or more under Section 271BA. Where a transfer pricing adjustment is made and income has been understated beyond a specified threshold, a penalty of 100% to 300% of the tax on the underreported income may additionally apply.
Transfer Pricing documentation obligations are triggered when the aggregate value of international transactions exceeds ₹1 crore in a financial year, or when specified domestic transactions exceed ₹20 crore in aggregate. However, the obligation to file Form 3CEB under Section 92E applies to all taxpayers who have undertaken international transactions regardless of value making compliance relevant even for entities with lower value related party dealings. Master File and CbCR obligations carry separate thresholds based on consolidated group revenue.
The Master File and Country-by-Country Report form part of the three tier documentation structure introduced in India under OECD BEPS Action 13. The Master File, required under Rule 10DA where consolidated group revenue exceeds ₹500 crore, provides a high level overview of the group's global operations, transfer pricing policies, and intangibles. The CbCR, required under Rule 10DB where consolidated group revenue exceeds ₹5,500 crore, presents a jurisdiction wise breakdown of revenue, profit before tax, taxes paid, and economic activity. Both are subject to automatic exchange between tax administrations internationally.