Last reviewed: 28 October 2026. By NRAM & Co., Chartered Accountants, Hyderabad (ICAI FRN 023031S).
In short: If an Indian company transacts with its foreign parent or other group companies, Indian tax law requires those transactions to be priced at arm’s length. The company must keep documentation each year and file an accountant’s report on these transactions with its tax return.
Which transactions are covered
Transfer pricing applies to “international transactions” between associated enterprises, for example:
- Software development, back-office or other services provided by the Indian subsidiary to its parent.
- Reimbursement of costs and allocation of management fees.
- Royalties, licence fees and technical service fees paid to the parent.
- Loans, guarantees and interest between group companies.
- Purchase or sale of goods between group companies.
What arm’s length means
The price must be what unrelated parties would agree in similar circumstances. Indian law recognises several methods to test this, including the comparable uncontrolled price method, cost plus method, resale price method, profit split method and the transactional net margin method (TNMM).
For a subsidiary that provides services to its parent on a cost-plus basis, TNMM is the most common method: the subsidiary’s profit margin on costs is compared with margins earned by comparable independent companies.
Documentation and the accountant’s report
Each year, the Indian entity must maintain transfer pricing documentation describing the group, the transactions, the functions performed, the risks borne and the analysis supporting the price. It must also file a report from a Chartered Accountant on its international transactions before the tax return due date.
Larger groups have additional master file and country-by-country reporting obligations, depending on group revenue thresholds.
Ways to reduce disputes
- Put an intercompany agreement in place before the transactions start.
- Set the markup with reference to a benchmarking study, and review it each year.
- Consider safe harbour rules, where available for the type of transaction, or an advance pricing agreement for long-term certainty.
- Keep invoices and cost allocations consistent with the agreement.
How NRAM & Co. can help
We prepare intercompany agreements, benchmarking, annual transfer pricing documentation and the accountant’s report for Indian subsidiaries of foreign groups. See Services for US and International Clients, or email info@nramco.com.
This article is general information, not advice for any specific situation. Indian tax, GST and FEMA rules change often; check the current position with a professional before acting.