The Transfer Pricing Regulation in India
In order to curb the practice of avoiding tax by the foreign companies in India, a legislation under the name ‘Transfer Pricing Regulation’ has been introduced.
The following are the important statutes of the law.
- Each person or association who has involved in an international transaction should maintain an up-to-date record of each transaction as prescribed by the legislation.
- All income acquired by the company by means of any international transaction shall be calculated at arm’s length price. There are various methods to calculate the arm’s length price, depending on the nature and type of the transaction, the nature of the group or the association involved, or any other features of the transactions involved. These methods are introduced by the Central Board of Direct Taxes, generally known as the ‘Board’. Some of them include the resale price method, cost plus method, comparable uncontrolled price method, and transactional net margin method.
- If there are two or more appropriate prices assumed for a certain transaction, the arm’s length price will be calculated as the average of the prices.
- At the end of a financial year, the person or group involved in an international transaction should submit the report of it in Form 3CEB under the guidance of a Chartered Accountant. This form has to be filed before he files the Income Tax return of the same period.
The group or person who does not adhere to these rules is liable to pay the penalties as imposed by the Board.
Transfer Pricing Regulation for Indian Companies
All Indian companies are required to analyze their international transaction with respect to the Transfer Pricing Regulation and adhere to it by maintaining proper transaction records and documents.
The following step-by-step procedures explain our modus operandi.
- A fact-finding exercise is carried out in order to analyze the various functions performed by the organization and the possible risks that can be encountered by each activity.
- Select the appropriate method of transfer pricing and identify the parties who have been tested with the particular method.
- Conduct a survey based on the database available from various national and international sources in order to identify the companies that can be benchmarked for the selected company and perform a financial analysis on the basis of them.
- Prepare a consolidated report on the basis of the analysis and document it appropriately.
- Issue the report in Form 3CEB as mandated by the Indian Income Tax Act, 1961.
Osmani & Co. is also specialized in defending the transfer pricing policy of various companies in front of the policy officers and thus counter them in an efficient manner.
Should you know how to carry out the business activities adhering to the transfer pricing policy or should you have any query on other related procedures, you may contact.