Transfer Pricing

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HEM CHANDRA (Querist)
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17 December 2010 What is Transfer Pricing. Is payment in Different Currency remitted in India for payment of development of software covers transfer pricing. if so, what is the audit report form for the same.

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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17 December 2010 Transfer pricing is used in case of transaction in between the same concern or sister concern.

HEM CHANDRA

HEM CHANDRA (Querist)
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18 December 2010 is compliance of audit report mandatory. is yes what form is used.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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02 August 2025 Great set of questions! Let's clarify everything step by step regarding **transfer pricing**, **foreign currency payments for software development**, and the **mandatory audit requirements** under Indian tax law.

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## ✅ **What is Transfer Pricing?**

**Transfer Pricing (TP)** refers to the **pricing of transactions** between **Associated Enterprises (AEs)** — i.e., related parties — especially when one or both are located in **different tax jurisdictions**.

📌 In simple terms:

> **TP ensures that international (and some domestic) related-party transactions are priced as if they were between independent, unrelated parties ("arm's length price").**

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## 💻 **Foreign Currency Payment for Software Development – Is TP Applicable?**

Yes — **transfer pricing may apply** **if**:

* The **payment is made to a foreign associated enterprise (AE)** for development services; and
* The relationship qualifies as **international transaction** under **Section 92B** of the Income Tax Act.

📦 **Example:**
If an Indian company pays a **foreign group company** in USD or EUR for **software development services**, then:

* This is an **international transaction**.
* TP documentation and compliance are **mandatory**, provided thresholds are exceeded.

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## 🧾 **Is Transfer Pricing Audit Mandatory?**

✅ **Yes**, if your business has entered into **international transactions** (or specified domestic transactions), and the **aggregate value exceeds ₹1 crore (₹10 million)** in a financial year.

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## 📄 **Which Audit Report Form Is Required?**

### 🔹 **Form 3CEB**

* Required under **Section 92E** of the Income Tax Act.
* It is a **chartered accountant’s report** certifying that your international/domestic transactions with AEs are at arm’s length.
* Must be filed **electronically** with the Income Tax Department.
* **Due Date:** Same as the income tax return for transfer pricing cases — typically **October 31** after the end of the financial year.

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### 🧾 **Documentation Checklist (Rule 10D):**

You must maintain detailed documentation for:

* Nature and terms of the transaction
* Functional, asset, and risk (FAR) analysis
* Method used to determine ALP (CUP, TNMM, etc.)
* Economic analysis and benchmarking
* Agreements/contracts with AEs
* Financial statements of both parties

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## ✅ Summary:

| **Question** | **Answer** |
| --------------------------------------------------------- | ----------------------------------------------------------------------- |
| What is Transfer Pricing? | Pricing of transactions between associated enterprises at arm’s length. |
| Does payment in foreign currency for software trigger TP? | Yes, if made to a foreign associated enterprise. |
| Is TP audit mandatory? | Yes, if transaction value > ₹1 crore. |
| What audit report form is used? | **Form 3CEB**, filed by a Chartered Accountant. |

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Would you like a **sample filled Form 3CEB**, or a list of **common software-related international TP transactions** to help with documentation?

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