Domestic Transfer Pricing

Before, only international transactions were covered by the transfer pricing (TP) regulations. However, as of April 1, 2013, particular domestic transactions are now included in the scope of transfer pricing, making it applicable starting with the 2013–14 assessment year (A.Y. ).

Legal Definition of Domestic Transfer Pricing?

According to Section 92BA, the following transactions are considered “specified domestic transactions” for purposes of the assessee and are subject to the TP rule.

Any costs associated with a payment made or to be paid to a person mentioned in section 40A (2) that have been or will be incurred (b).

monetary exchanges covered under section 80A.

any exchange of products or delivery of services as described in section 80-IA, paragraph 8.

Any business deal mentioned in section 80-IA, subsection 8, between the assessee and a third party

Any transactions that have been described in Chapter VI-A or Section 10AA, or for anyone to whom the terms of Section 80 IA, Subsections 8 and 10 apply.

And if the assessee’s total of these transactions throughout the preceding year reaches 20 crores

any more business dealings

Threshold Limit

Only if the combined turnover of the aforementioned transactions reaches Rs. 20 crore will the aforementioned provisions be applicable (w.e.f. 1st April 2017 i.e. A.Y. 2017-18 onwards) In other words, even though the value of the transactions under any one category may be low, the taxpayer will still need to comply with the TP requirements if the threshold limit has been surpassed. As a result, there is no threshold for any of the definition’s heads.

Applicability of Domestic Transfer Pricing?

Transfer pricing cannot be used by tax payers to lower their tax obligations for specific domestic transactions.

The 20 crore monetary threshold limit will be determined based on the total of all payments and receipts covered by these regulations.

the meaning of Expenses that are not permitted to be paid for businesses with common beneficial ownership are included as a related party.

Advance Pricing Agreement clauses are expressly excluded from transfer pricing, which primarily applies to certain domestic and foreign transactions.

Concept of Arm’s Length Price(ALP)

Specified Domestic Transactions have also been included in the scope of the ALP concept. The price recommended to be imposed in a transaction between the assessed and any other unconnected person in an uncontrollable circumstance is referred to as ALP.

Methods of Computing ALP

comparable unregulated price approach

Resale price approach

Cost plus approach

profit-sharing strategy

Method of transactional net margin

Any other approach that the Board may notify

Documentation requirements for Domestic Transfer Pricing transactions