Transfer Pricing Documentation for Indian Subsidiaries

Indian transfer pricing documentation operates on three tiers, each with its own trigger. Every constituent entity of an international group files Master File Part A regardless of size. Part B is additional and applies only where consolidated group revenue exceeds ₹500 crore and the Indian entity’s international transactions exceed ₹50 crore, or ₹10 crore for intangible property transactions. Country-by-country reporting applies where consolidated group revenue exceeds ₹6,400 crore. A local file and an accountant’s report are separate obligations again.

Why groups get this wrong

The recurring failure is not ignorance of the rules — it is assuming that group-level documentation prepared to an OECD standard discharges the Indian obligation. It generally does not.

Indian requirements are prescriptive about content, format and the accountant’s report, and the Indian entity’s filing obligation is independent of what the parent files elsewhere. A group with excellent global documentation can still have a non-compliant Indian subsidiary, and the penalty exposure sits with the Indian entity.

The second failure is timing. Documentation prepared after a notice is qualitatively different evidence from documentation prepared contemporaneously. Assessing officers can tell the difference, and it colours the entire assessment.

The thresholds and forms

Under the Income-tax Act, 2025, these forms are renumbered as Forms 56 to 60 respectively for tax year 2026-27 onwards. For AY 2026-27 filings, which remain governed by the 1961 Act, the existing 3CEA-series numbering applies.

Where documentation fails on assessment

Functional analysis that does not match reality. Documentation describing the Indian entity as a limited-risk service provider while the operational facts — headcount seniority, decision rights, customer contracting, inventory and credit risk — indicate otherwise. This is the most common and most expensive failure, because it invites recharacterisation rather than a mere pricing adjustment.

Comparables selected without a defensible search process. Where the search strategy, screening criteria and rejection reasons are not documented, the set is vulnerable to substitution by the department’s own.

Method selection asserted rather than reasoned. The rationale for choosing the method, and for rejecting the others, has to be on the record.

Intra-group services without evidence of benefit. Management fees and cost allocations require evidence that services were rendered and that the recipient benefited. Allocation keys must be rational and consistently applied. This remains among the most frequently disputed categories.

Financing transactions benchmarked casually. Intra-group loans and guarantees require credit rating analysis and appropriate comparables, not a spread asserted by reference to group policy.

[INSERT: an anonymised Solique engagement example — ideally a case where a functional analysis was corrected before filing and what that avoided.]

What good practice looks like

Align documentation with operational reality before filing, rather than defending a characterisation the facts do not support. Where the facts have drifted — as they typically do when an Indian entity grows from back office to decision-making centre — update the characterisation and price accordingly.

Prepare contemporaneously. The evidentiary value of documentation is substantially a function of when it was created.

Reconcile the transfer pricing position with the customs valuation position. The two are examined by authorities with opposing incentives, and inconsistency between them is a recognised vulnerability.

Maintain the benchmarking search trail, not just the conclusion.

Related reading

• permanent establishment risk — Permanent Establishment Risk for Foreign Companies in India
• how TP disputes are actually fought — Transfer Pricing Disputes in India
• related party approval requirements — Related Party Transactions: Companies Act and SEBI LODR Rules

Sources

• Section 92D and Rule 10DA, Income-tax Act and Rules — incometax.gov.in