[Opinion] Budget 2026 – Key Expectations in Transfer Pricing

Rajiv Bhutani – [2026] 182 taxmann.com 609 (Article)

India’s economic journey over the past few years has been marked by remarkable growth and a steady rise in its position on the global stage. India is the fourth largest economy in the world, and the country’s growth reflects a combination of strong domestic demand and policy reforms, positioning the country as a key destination for global capital.

While a strong foothold in global business creates business opportunities, it intertwines with cross border businesses, related party transactions, and international taxation related challenges including Transfer Pricing. With an objective of preventing base erosion and shifting of profits outside the country, India also adopted the Transfer Pricing law back in 2001. And since its inception, India’s Transfer Pricing law has evolved by adapting to market conditions and global developments.

As we approach the Union Budget 2026, it is expected that the Indian Tax landscape will further align itself with the ever-changing global business needs and developments. Some of the key areas, where we expect certain changes and modifications, are listed below:

Removal of ambiguity in the definition of Associate Enterprise for Transfer Pricing Regulations

Currently, the definition of ‘Associated Enterprise’ as per section 162 of the new Income Tax Act 2025 diverges from the existing provisions of section 92A of the Income Tax Act 1961. The Income Tax Act 1961 has two limbs, i.e., section 92A(1) prescribing the basic attributes that must be satisfied for an Associated Enterprise relationship, which include participation in control, management or capital; and section 92A(2) laying down an exhaustive list of conditions to be satisfied by two or more entities to be regarded as Associated Enterprises.

However, Section 162 of the Income Tax Act 2025 has merged the provisions of Section 92A(1) and 92A(2) of the Income Tax Act 1961 into a single segment, and one of the general conditions for an Associated Enterprise relationship has been defined to be one of the specific conditions for establishing an ‘Associated Enterprise’ relationship. The amended definition of Associated Enterprise may result in different interpretations, leading to ambiguity for taxpayers while determining the Associated Enterprises relationship.

To ensure transparency and reduce unnecessary disputes, it is expected that each clause defining an Associated Enterprise be precisely defined, with explicit thresholds for capital, management, and control relationships, so that the scope of the ‘Associated Enterprise’ definition is applied consistently and predictably.

Threshold for maintaining Transfer Pricing documentation

Currently, the taxpayers undertaking international related party transactions exceeding INR 1 crore, are required to mandatorily maintain the Transfer Pricing documentation. This threshold has been applicable since the inception of Transfer Pricing provisions in India in 2001.

With businesses reaching new altitudes and manifold transaction volumes, the number of related party transactions is much higher than ever before. In light of the massive increase in businesses leading to much higher related party transaction volumes, the existing threshold of INR 1 crore seems modest. Hence, the expectation is that this Transfer Pricing Documentation related threshold may get an upgrade, to a much higher number.
Threshold for secondary adjustment

The Indian Transfer Pricing regulations have a provision of ‘secondary adjustment’ which requires an adjustment in the books of accounts to reflect actual profit allocation after a primary transfer pricing adjustment, treating un-repatriated funds as deemed loans with interest, preventing cash imbalances with Associated Enterprises (AEs). However, the threshold for triggering the secondary adjustment currently stands at a modest INR 1 crore of primary adjustment.

Considering the high volume of related party transactions and the transfer pricing adjustments arising out of disputes of such large related party transactions, it is believed that the threshold of INR 1 crore for triggering secondary adjustments is relatively low and often leads to compliance requirements for minor transfer pricing variations. Increasing the threshold to a higher amount would meaningfully reduce administrative burden, particularly for taxpayers with small or routine adjustments.

Furnishing of Accountant’s Certificate for non-residents

Currently, all non-resident taxpayers entering into taxable transactions with their Indian related parties are required to file an Accountant’s Certificate in India, irrespective of the fact that such non-resident taxpayers are exempted from filing their income tax return in India in certain cases.

To avoid redundant compliance, it is expected that an exemption from filing of the Accountant’s Report might be given to such non-resident taxpayers, where they are exempt from filing an income tax return in India.

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