Tax on International Transactions: What Section 163 of the Income-tax Act, 2025 Covers

Legal position as at 29 October 2026

Most transfer-pricing problems start before any benchmarking. A guarantee nobody reported, an intercompany receivable left unpaid for a year, a supplier contract negotiated by the parent: each can be an international transaction that is missing from the report. Section 163 of the Income-tax Act, 2025 decides what goes on the list. This article explains how it works, using the section numbers that apply from tax year 2026-27.

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Section 163 corresponds to the old section 92B, and its substance is largely unchanged. Files for earlier years stay under the 1961 Act. New to transfer pricing? Start with our plain-English guide.

Two conditions: associated enterprises and a non-resident

Under section 163(1), an international transaction is a transaction between two or more associated enterprises, at least one of which is a non-resident. So the first question is whether the counterparty is an associated enterprise under section 162.

Section 162 goes well beyond shareholding. Two enterprises are associated where, among other tests:

• one holds, directly or indirectly, shares carrying at least 26% of the voting power in the other;
• a loan from one is at least 51% of the book value of the other's total assets;
• one guarantees at least 10% of the other's total borrowings;
• one appoints more than half of the other's board, or one or more of its executive directors;
• the other's business is wholly dependent on know-how, patents or other intangibles owned by the first; or
• one supplies 90% or more of the raw materials and consumables the other uses in manufacturing, and influences their prices and conditions.

A lender or guarantor with no equity stake can therefore be an associated enterprise. Test every foreign counterparty against the full list, not only against the shareholding register.

The seven categories in section 163(1)

Section 163(1) lists seven categories, in clauses (a) to (g):

The definition has no minimum value. Value can affect the documentation the Rules require, but it does not take a transaction outside section 163.

Receivables and guarantees

Clause (c) expressly includes receivables and other business debts, so an overdue intercompany balance has to be analysed, not ignored. Tax officers have often treated delayed collection as an interest-free loan and imputed interest on it.

Example: an Indian IT subsidiary invoices its US parent on 60-day terms, but on average collects after 210 days. The questions are what the agreement says, how the subsidiary treats unrelated customers who pay late, whether its margin benchmarking already includes a working-capital adjustment, and whether the parent pays interest on late amounts. Those answers decide whether the delay needs to be priced separately. The age of the balance alone does not.

Guarantees also fall within clause (c). Distinguish a legally enforceable guarantee from a comfort letter or general group support, and price a guarantee by reference to the benefit to the borrower and the risk the guarantor takes on.

Deemed international transactions under section 163(2)

Section 163(2) can make a transaction with an unrelated party an international transaction. It applies where both of these are true:

• there is a prior agreement about the transaction between the unrelated party and an associated enterprise, or the terms of the transaction are in substance decided between them; and
• the enterprise, the associated enterprise, or both, are non-residents.

The unrelated party does not have to be a non-resident, and that is what catches domestic contracts. Example: an Indian subsidiary buys components from an Indian supplier, but its Singapore parent negotiated the price, volumes and terms under a group framework agreement. The purchase can be a deemed international transaction even though both parties to the contract are in India. Keep the emails, framework agreements and approval records that show who set the terms.

How the 1961 Act sections map to the 2025 Act

For transactions between residents, section 164 applies only to the categories of specified domestic transaction it lists, and only where their aggregate value in the tax year exceeds ₹20 crore. See our guide to domestic transfer pricing and the ₹20 crore threshold.

What follows once a transaction is in scope

• Pricing: section 161 requires income to be computed having regard to the arm's length price. Under section 161(4), the result cannot reduce the income, or increase the loss, shown by the books.
• Documentation: section 171 requires the prescribed information and documents to be kept.
• Accountant's report: section 172 requires a report, which Rule 85 prescribes in Form 48, the replacement for Form 3CEB. It must be filed at least one month before the return due date under section 263(1)(c). For AY 2026-27, the last year under the 1961 Act, Form 3CEB is due on 31 October 2026 (details).
• Assessment: the Assessing Officer can refer the arm's length price to a Transfer Pricing Officer under section 166.
• Secondary adjustment: after a primary adjustment, section 170 can require the excess money to be brought back to India within the prescribed time. If it is not, it is treated as an advance and interest is imputed.

Checklist before the report is signed

• Test every foreign counterparty against all the section 162 tests, including loans, guarantees, board rights, dependence on intangibles and control over supplies.
• Reconcile the transaction list to the ledger, the contracts, the related-party note in the financial statements and last year's report.
• Age intercompany receivables and compare them with the contract terms and with practice for unrelated customers.
• List guarantees, comfort letters and other group support given or received.
• Look for non-cash dealings: assets or intangibles used without charge, seconded staff, and transfers of people or customers.
• Identify third-party contracts whose terms were negotiated by a group company.
• Confirm the Act, the Rules, the form (Form 48 or Form 3CEB) and the due date for the year.

The bottom line

Section 163 decides scope, not price. Get the list complete first, including deemed, non-cash and financing transactions, and the method, benchmarking and documentation follow from it. AskSolique's TaxTwin maps each 1961 Act section to its 2025 Act equivalent, which helps when carrying prior-year files into the new Act.

This article is general information based on the law as at 29 October 2026. It is not advice on any specific transaction. Whether a transaction is reportable and how it should be priced depend on the facts and the tax year concerned.

Related reading

• What Is Transfer Pricing? A Plain-English Guide for Indian Businesses
• Domestic Transfer Pricing in India: Section 92BA and the ₹20 Crore Threshold
• Transfer Pricing Audit in India: Form 3CEB, Due Dates and the AY 2026-27 Deadline Twist
• International Tax Planning in India After Tiger Global: GAAR, PPT and POEM

Sources and further reading

Links point to the official text wherever it is available online. Check that each link opens before publishing.

• Income-tax Act, 2025: section 161 (arm’s length price)
• Income-tax Act, 2025: section 162 (associated enterprise)
• Income-tax Act, 2025: section 163 (international transaction)
• Income-tax Act, 2025: section 164 (specified domestic transaction)
• Income-tax Act, 2025: section 170 (secondary adjustment)
• Income-tax Act, 2025: section 172 (accountant’s report)
• Income-tax Rules, 2026: Rule 85 (Form 48 and due date)
• Taxmann: Form 48 under Rule 85 replaces Form 3CEB