Budget 2025-26: Govt may clarify transfer pricing changes in 3 months

The government will issue clarifications within three months regarding the proposed changes to transfer pricing regulations as introduced in the 2025-26 Union Budget, a senior official has said.

 

To ease the compliance burden on multinational companies, the Budget has introduced a block assessment mechanism for transfer pricing, ensuring tax stability for three years in line with global best practices. Under this approach, a predetermined Arm’s Length Price (ALP) will remain applicable for an additional two years for similar transactions, simplifying the process for businesses. 

 

Transfer pricing refers to the actual price charged in transactions between related entities within the same multinational firm. Since tax rates vary across countries, multinational firms have an incentive to set transfer prices in a way that minimises the group’s overall tax liability.   

 

"We will issue clarifications on the determination of similar transactions within three months. We will also clarify whether such transactions can be disputed,” the official said.

 

The proposed amendments, which are part of the Finance Bill, 2025, may take effect from April 1, 2026, once passed by Parliament.

 

Currently, under Sections 92 to 92F of the Income-tax Act, the ALP for each transaction is determined separately for every financial year, often leading to repeated assessments for similar transactions. This results in increased compliance costs for multinational companies and a greater workload for transfer pricing officers (TPOs). Under the proposed framework, taxpayers will have the option to adopt a multi-year ALP determination process, as outlined by the Income Tax Department. 

 

Some experts argue that the proposed measures have limited utility as they apply only to “similar transactions”. However, the Finance Ministry official assured that the government may expand their scope after implementation. “The Centre will monitor the impact of these changes and take further action accordingly,” the official added. 

 

While some experts claim these provisions cannot be disputed, the official clarified that transfer pricing assessments can be contested in the primary year as well as in the subsequent two years. 

 

However, Chetan Daga, managing partner at AdvantEdge Consulting, said: “These provisions appear to be non-appealable since corresponding amendments to appeal provisions have not been made.” 

 

Ravi Sawana, a partner at Lakshmikumaran & Sridharan, said that the Central Board of Direct Taxes (CBDT) must also address other emerging issues, such as the applicability of this provision to past years or pending proceedings. 

 

Vijay Iyer, partner and national leader of transfer pricing at EY India, noted that the Budget underscores the government’s commitment to fostering private sector participation in India’s growth. “For both Indian multinational corporations and foreign firms, transfer pricing plays a crucial role in tax compliance and investment decisions. By introducing block assessments, the government aims to reduce compliance pressures, allowing taxpayers to complete three years of transfer pricing assessments for designated transactions in a single process,” he added.