Section 92D of Income Tax Act – Documentation for International and Domestic Transactions

When it comes to taxation in India, international and specified domestic transactions are always under strict scrutiny. To ensure transparency and prevent tax evasion, the government introduced Section 92D of Income Tax Act. This section lays down mandatory requirements for maintaining information and documents related to transfer pricing.

In simple terms, every person who has entered into an international transaction or specified domestic transaction is required to maintain detailed records. This includes companies, individuals, and even entities belonging to an international group operating in India. Without proper compliance, taxpayers risk heavy penalties and litigation.

Understanding Section 92D of Income Tax Act

Section 92D of Income Tax Act, 1961, deals specifically with the obligation to maintain documentation for transfer pricing purposes. Transfer pricing refers to the pricing of goods, services, and intangibles transferred between associated enterprises, either across borders or within the country in certain specified domestic transactions.

The law makes it clear – it is compulsory for every individual who deals with international or particular domestic transactions to keep prescribed records. This ensures that the Income Tax Department can verify whether transactions are carried out at arm’s length prices (ALP), preventing manipulation of profits."

Who Needs to Comply with Section 92D?

The compliance requirement applies to:

1. Every person who has entered into an international transaction – This includes businesses, individuals, or companies that deal with foreign entities.
2. Every person who has entered into an international transaction or specified domestic transaction – Even domestic dealings with related parties of significant value fall under this law.
3. Entities belonging to an international group – Multinational companies with subsidiaries, branches, or permanent establishments in India must maintain group-level documentation.

For example, an Indian subsidiary buying software licenses from its US parent company is covered under this section.

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Applicability of Section 92D

The provisions apply when:

• A taxpayer is part of an international transaction involving associated enterprises.
• A taxpayer is involved in specified domestic transactions above a threshold (currently ₹20 crore in aggregate).
• A business is part of a multinational group and required to file master files under Indian rules.

Thus, every person who has entered into an international transaction or specified domestic transaction has a legal duty to comply with Section 92D.

Documentation Requirements under Section 92D

The law prescribes that taxpayers should maintain prescribed information and documents, which typically include:

1. Details of Associated Enterprises (AEs) – Ownership, structure, and relationship details.
2. Nature of International Transactions – Goods, services, financing, intangibles, etc.
3. Transfer Pricing Method Applied – Comparable Uncontrolled Price (CUP), Resale Price Method, TNMM, etc.
4. Economic & Functional Analysis – Roles, assets, and risks of each party.
5. Supporting Documents – Agreements, invoices, and benchmarking studies.

For entities belonging to an international group, filing a master file is also required if turnover or international transaction thresholds are met.

Section 92D and Master File Requirements

Rule 10DA of the Income Tax Rules supplements Section 92D, requiring large international groups to file Form 3CEAA (Master File)."

This master file includes:

• Group structure details
• Business description of entities
• Intangibles held by the group
• Inter-company financial arrangements

Therefore, entities belonging to an international group must go beyond regular documentation and comply with additional reporting norms.

Penalties for Non-Compliance

Failure to maintain or furnish documentation under Section 92D attracts strict penalties:

• ₹25,000 for failure to maintain documents.
• ₹500 per day for failure to furnish documents during assessment.
• ₹5,00,000 for non-furnishing of Master File by international groups.

This makes it absolutely necessary that every person who has entered into an international transaction ensures complete and accurate compliance.

Example – International Transaction

Suppose an Indian IT company provides software development services to its US parent company. Since it is an international transaction, the Indian entity must maintain documentation under Section 92D. This will include details of pricing, methods used for benchmarking, and agreements with the parent entity.

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Example – Specified Domestic Transaction

Imagine a large corporate group in India where two subsidiaries enter into transactions of ₹30 crore. Since this exceeds the threshold, the subsidiaries are required to comply with Section 92D of Income Tax Act and maintain all prescribed documents.

This proves that it is compulsory for every individual who deals with international or particular domestic transactions to comply, regardless of residency.

Why Section 92D is Important

1. Ensures Tax Transparency – Helps prevent shifting of profits.
2. Protects Against Penalties – Proper compliance avoids litigation.
3. Supports Global Standards – Aligns Indian tax law with OECD guidelines.
4. Encourages Fair Play – Creates a level field for domestic and multinational companies.

Thus, Section 92D ensures accountability for both every person who has entered into an international transaction and entities belonging to an international group.

Recent Updates and Developments

In recent years, India has strengthened its transfer pricing regime by:

• Introducing Country-by-Country Reporting (CbCR) for large multinational groups.
• Increasing penalties for non-compliance.
• Enhancing audit scrutiny for companies with cross-border transactions.

This makes compliance under Section 92D more critical than ever before."

Common Mistakes Taxpayers Make

1. Incomplete Documentation – Failing to include all details in transfer pricing reports.
2. Late Filing – Missing deadlines for furnishing reports and master files.
3. Incorrect Transfer Pricing Method – Using inappropriate benchmarking methods.
4. Ignoring Specified Domestic Transactions – Assuming compliance applies only to international dealings.

Avoiding these mistakes ensures smoother tax assessments.

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Conclusion

Section 92D of Income Tax Act is a cornerstone of India’s transfer pricing regulations. It ensures that every person who has entered into an international transaction or specified domestic transaction maintains the required documentation. It also mandates compliance for entities belonging to an international group, making it one of the most critical sections for multinational companies and individuals with cross-border dealings.

Simply put, it is compulsory for every individual who deals with international or particular domestic transactions to comply with Section 92D, or risk heavy penalties.

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