Section 92E of Income Tax Act: Transfer Pricing Report Requirement

Section 92E is one of those provisions that businesses usually come across only when compliance discussions begin at the earliest. It often surfaces during tax audits or year end reviews, especially for companies dealing with group entities. At its core, 92E of income tax act is about transparency in related party transactions rather than creating an additional tax burden.

To understand section 92E applicability, it’s important to look at the nature of transactions rather than their outcome. The provision applies when a taxpayer enters into international transactions or specified domestic transactions with associated enterprises. These transactions may include purchase or sale of goods, provision of services, loans, guarantees or royalty payments. Even if such dealings are routine and commercially justified, the law requires them to follow arm’s length pricing. This is where a transfer pricing audit report becomes necessary.

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The audit report must be certified by a practising chartered accountant and filed in Form 3CEB. The form 3CEB filing requirement does not depend on whether the transaction resulted in profit, loss or no tax impact at all. In practice, many businesses assume that small value or loss making transactions are irrelevant, but the law does not provide such relaxation. Even a single qualifying transaction can trigger the reporting obligation.

From a compliance perspective, section 92E compliance is strictly time bound. The report has to be filed within the prescribed due date, which generally aligns with the tax audit deadline. Missing this timeline can be expensive. The penalty for non filing section 92E is fixed and applies irrespective of transaction size, which is why timely preparation is critical. Businesses that leave documentation to the last minute often face unavoidable stress.

When viewed within the correct framework, Section 92E of the Income Tax Act is mainly viewed as a "disclosure" provision. The tax department wishes to obtain a definitive understanding of how related entities establish pricing and whether those prices reflect the fair market value. Adequate recordkeeping and filing the Form 3CEB will help make the section 92E requirements more routine.

Understanding the applicability of Section 92E at an early stage is critical for organisations that routinely engage in related party transactions to plan for transfer pricing compliance in regular tax planning, thereby mitigating exposure to penalties and last minute complications.