Transfer Pricing In India 2026: The New Law And Everything That Has Changed

• Taxation
• ||
• August 29, 2026

If your business works with related companies outside India—whether you’re buying goods, selling services, providing loans, or sharing intellectual property—India’s transfer pricing rules directly impact you.

In 2026, these rules have undergone some of the biggest changes in years. A new Income Tax Act has replaced the previous law, a revised assessment framework has been introduced, and the scope of safe harbour provisions has expanded. These updates can affect your tax compliance, documentation requirements, and overall tax risk.

This guide breaks down everything you need to know in simple, practical language—what transfer pricing means, what’s changed in 2026, and the key steps your business should take to stay compliant and avoid unnecessary tax disputes.

What is Transfer Pricing:why  it matters for your business.

Transfer pricing is the price one company charges another company in the same group for goods, services or loans — say, an Indian subsidiary paying its US parent for software. On the surface it looks like any other business transaction. The difference is that both sides answer to the same owner, so nothing stops them from agreeing on whatever price suits the group best, rather than a genuine market price.

That is exactly what Indian law is watching for. If the parties can set any price they like, they can also use that price to quietly move profit out of India — inflating what the Indian company pays its foreign parent, for example, until barely any profit is left to tax here. This kind of profit-shifting is known globally as BEPS (Base Erosion and Profit Shifting).

A quick example: Say an Indian company manufactures goods for ₹100 and would normally sell them for ₹150 to an outside buyer. If it instead sells to its own US parent for ₹105, almost all the profit shifts to the US the moment the parent resells at ₹150 — and India collects tax on only ₹5 of profit instead of ₹50.

To stop this, Indian law requires related-party deals to be priced at “arm’s length” — the same price two unrelated companies would have agreed. India is one of the most active transfer pricing jurisdictions in the world, and disputes here have historically been common, which is exactly why getting it right matters.

How is the arm’s length Price actually worked out?

The law lets you use whichever of the recognised methods best fits your transaction:

• Comparable Uncontrolled Price (CUP), Resale Price Method (RPM) and Cost Plus Method (CPM);
• Profit Split Method (PSM), Transactional Net Margin Method (TNMM) — the most widely used — and a residual “other method.”

Because no two comparables are ever identical, the law allows a small tolerance band (+-3%) around the arm’s length price.

Source: Income-tax Act, 2025, Section 165(3)(a)(ii).

What has changed under the New Income-tax Act, 2025?

This is the biggest shift. From 1 April 2026, the Income-tax Act, 2025 has replaced the six-decade-old Income-tax Act, 1961. The core principles of transfer pricing stay the same, but the law has been reorganised and renumbered:

• The transfer pricing provisions have moved from the old Sections 92 to 92F into Sections 161 to 173 of the new Act.
• “International transaction” is now defined under Section 163, with a wider, clearer scope that captures modern digital and contractual dealings.
• India has moved to a single “tax year”, replacing the confusing old pair of “previous year” and “assessment year.”
• New Income-tax Rules, 2026 set out the day-to-day mechanics.

For most businesses, your existing transfer pricing policy still holds — but every internal manual, checklist and reference to the old section numbers should be updated.

What is the new block Transfer Pricing Assessment?

Until now, businesses had to justify their pricing to the tax office every single year — even for the same, unchanging transaction. That meant repeated audits and repeated disputes.

The Finance Act, 2025 fixed this with a block (multi-year) assessment. In short: once the Transfer Pricing Officer accepts your arm’s length price for one year, you can choose to apply that same price to the next two years — a three-year block — as long as the transaction has not materially changed. It works like this:

• You opt in through a prescribed form. (Form No. 46, accompanied by an accountant’s certificate in Form No. 47).
• Your pricing method, business model, group structure and functional profile must stay broadly the same, certified by an accountant.
• It applies from Tax year 2026-27, and is backed by OECD and UN Nations best practice.

For businesses with steady, recurring group transactions, this is a genuine relief — fewer audits, lower costs and far more certainty.

• Who can file: Taxpayers whose case has already gone to a TPO for the first tax year (Section 166(1)), with broadly consistent transactions across the block
• Filing forms: Form No. 46 (opt-in) + Form No. 47 (accountant’s certificate) — kept from before
• Due date: After the end of the third tax year, but on or before 30 June following it
• Penalty: Clarified there’s no separate penalty for the opt-in itself, but false certification or facts that don’t match reopens the block years to ordinary TP penalties

How have the safe harbour rules changed in 2026?

Safe harbour rules let you avoid a detailed transfer pricing review if you declare a margin the tax office has pre-approved. They are a shortcut to certainty — and they have just been widened.

What changed in 2025 (Notification 21/2025): the turnover limit to use safe harbour was raised from ₹200 crore to ₹300 crore, and lithium-ion batteries for electric and hybrid vehicles were added as eligible “core auto components,” supporting India’s EV push. These apply for AY 2025-26 and AY 2026-27.

What is coming in 2026:

What records does your business need to keep or file ?

India follows the global three-tier documentation approach, and the filing related to transfer pricing is electronic. The table below shows what applies and when:

There is no separate deadline to prepare or file the local documentation (TP study) itself — unlike Form 48 or the Master File, it isn’t submitted anywhere on its own. Instead, it must simply be in place and ready to produce if the Transfer Pricing Officer asks for it, so it pays to have it prepared well before your income tax return is filed, not after a notice arrives.

One point on who does what: Form 48 must be prepared and certified by a Chartered Accountant, who confirms your pricing records are complete and correct. You then approve it and file it online.

Filing forms and due dates in 2026. The new Income-tax Rules, 2026 keep the same core forms, with these key deadlines:

The intimation forms (3CEAB for the Master File and 3CEAC for the Country-by-Country Report) fall due a little earlier, so it is best to map all your dates at the start of the year.

How can you lock in certainty before a dispute arises?

Two tools let you agree your pricing with the authorities in advance. An Advance Pricing Agreement (APA) fixes an acceptable pricing method with the tax department for up to five future years, and can also be “rolled back” to cover four earlier years. India’s APA programme has matured well and signed a large and growing number of agreements.

Where two countries tax the same income, the Mutual Agreement Procedure (MAP) lets India and the other country resolve it between themselves, so your business is not taxed twice. Source: Income Tax Department, Government of India — India’s Mutual Agreement Procedure (MAP) Profile, based on Article 25 of the OECD Model Tax Convention.

What happens if you file  transfer pricing report wrong?

Transfer pricing carries real, specific penalties:

• Form 48 not filed (formerly Form 3CEB): ₹1,00,000 (Section 447, Income-tax Act, 2025 — formerly Section 271BA).
• Not keeping records, not reporting a deal, or giving wrong information: 2% of the value of the transaction (Section 442, Income-tax Act, 2025 — formerly Section 271AA) — charged per transaction and not capped.
• Not giving the Transfer Pricing Officer documents when asked: 2% of the transaction value (Section 457, Income-tax Act, 2025 — formerly Section 271G).
• Late or missing Country-by-Country Report: ₹5,000 a day for the first month and ₹15,000 a day after that (Section 459, Income-tax Act, 2025 — formerly Section 271GB).
• Under-reporting income: 50% of the tax; for deliberate misreporting, 200% of the tax (Section 439, Income-tax Act, 2025 — formerly Section 270A).

On top of these:

• Secondary adjustment rules can treat excess money kept abroad as a deemed loan, on which interest is charged until it is brought back to India.
• Thin capitalisation rules cap the interest a business can deduct on borrowing from group companies at 30% of its earnings (EBITDA).

The safest position is simple: price fairly, document properly, and file on time.

Does the Global Minimum Tax (Pillar Two) apply in India yet?

Not yet. Under the OECD’s Pillar Two rules, large multinational groups (with revenue above €750 million) should pay a minimum effective tax of 15% in every country they operate in. As of early 2026, India has not enacted its own Pillar Two law, though it is part of the OECD framework and a domestic minimum-tax measure is widely expected.

This still matters for Indian businesses: if your group has operations in countries that have already adopted Pillar Two, you may face top-up tax and extra reporting abroad. It is an area to watch closely.

What do these changes mean for Your business?

The direction of travel is clear — India wants transfer pricing to be simpler, more predictable and less litigious. To stay on the right side of it, most businesses should:

• Update policies, manuals and templates to the new Section 161–173 references;
• Consider whether the block assessment or the wider safe harbour now suits you;
• Keep documentation current and file every form on time;
• Review APA or MAP options if you have large or recurring cross-border dealings.

Conclusion

India’s transfer pricing regime has entered a new era. The new Income-tax Act, block assessments and wider safe harbour rules all point the same way — towards more certainty and less litigation for businesses that plan ahead. Get your pricing right, keep your records current, and use the new tools to your advantage, and transfer pricing becomes far less daunting than its reputation suggests.

Have cross-border transactions to manage? Contact Mercurius today for a free consultation on your transfer pricing compliance.

How Can Mercurius Help?

Transfer pricing is detailed, and the 2026 changes make expert guidance more valuable, not less. Our transfer pricing services cover it end to end: we prepare your documentation and Form 3CEB, carry out benchmarking studies to defend your pricing, and handle Master File and Country-by-Country reporting. We also advise on safe harbour.

The result is simple: fair pricing, clean documentation and fewer surprises — so you can focus on your business.

Reach out to us at info@masllp.com or call +91 966 777 9615 (India) / +1 307 223 4197 (International) to get started.

Frequently Asked Questions

1. Does transfer pricing apply to small businesses?
Yes. It applies to any business with an international transaction between related parties, whatever its size. A Form 3CEB report is required regardless of value.

2. What is the new block assessment in one line?
Once your arm’s length price is accepted for one year, you can apply it to the next two years, cutting repeat audits.

3. Have the transfer pricing section numbers really changed?
Yes. From 1 April 2026, the old Sections 92–92F became Sections 161–173 under the Income-tax Act, 2025, though the underlying principles are the same.

4. Does India have a 15% global minimum tax? 
Not yet. India has not enacted Pillar Two, but groups with operations in adopting countries may still be affected abroad.