Written by Jayasri P · Last updated 17 August 2026 · Statutory references current to the Income-tax Act 2025 and the Income-tax Rules 2026.
A specified domestic transaction brings purely domestic related-party dealings within the transfer pricing regime once their aggregate value in a tax year exceeds ₹20 crore. Compliance is not optional above that threshold. It requires arm’s length pricing, contemporaneous documentation, and an accountant’s report filed alongside the return of income.
Most Indian finance teams associate transfer pricing with cross-border transactions. That association is incomplete. A separate category of domestic dealings carries the same arm’s length obligations, the same documentation burden, and the same penalty exposure, and a substantial number of groups discover this only when an assessment notice arrives.
The regime has also just been renumbered. Provisions that Indian tax practice has cited for more than a decade now sit at different section numbers, and the rules beneath them have been renumbered as well.
What is a specified domestic transaction?
A specified domestic transaction is a transaction between related domestic parties that is not an international transaction, but which the statute nevertheless brings within transfer pricing scrutiny. The governing provision defines it by enumerating specific categories rather than by a general principle.
The purpose is straightforward. Where two related Indian entities transact with one another, and one of those entities enjoys a tax holiday, a profit-linked deduction or a concessional rate that the other does not, there is a plain commercial incentive to price the dealings between them in a way that moves taxable profit toward the entity which will pay the least tax on it, and the enumerated categories in the provision are drawn precisely around the situations in which that incentive arises. Bringing those dealings within the arm’s length standard removes the advantage of doing so.
Do you need transfer pricing documentation for your company?
You need transfer pricing documentation for domestic dealings if your specified domestic transactions exceed ₹20 crore in aggregate during the tax year. Below that threshold, the specified domestic transaction provisions do not apply at all.
The test is aggregate rather than per-transaction, which is the single point on which finance teams most often reach the wrong conclusion. A group running several modest related-party arrangements, none of which looks significant when examined on its own, can cross the threshold comfortably once the arrangements are added together, and the aggregation is rarely performed until an officer performs it during an assessment.
The threshold was raised to ₹20 crore by the Finance Act 2015, which lifted it from the earlier figure of ₹5 crore and thereby removed a very large population of mid-sized groups from the regime altogether. That change is why a business which was within the provisions a decade ago may sit outside them today, and why an internal position paper written before 2015 should not be relied upon without being revisited.
There is a second point of confusion worth settling. The threshold applies to the aggregate value of the specified domestic transactions themselves, not to the turnover of the entity entering into them, so a business of modest overall size can be within the regime while a substantially larger business with no qualifying dealings remains entirely outside it.
Which transactions does the provision actually cover?
The enumerated categories centre on dealings where a deduction or a concessional rate is claimed. Broadly, they include transfers of goods or services between units of the same assessee where one unit claims a profit-linked deduction, and transactions with related persons where a deduction under the relevant chapter is claimed.
| Category | Why it is covered |
|---|---|
| Transfers between undertakings of the same assessee | One undertaking claims a profit-linked deduction, creating an incentive to load profit into it |
| Transactions with specified related persons | A deduction is claimed in computing total income |
| Dealings involving units enjoying a concessional rate | The rate differential creates the same profit-shifting incentive |
One category that previously appeared in the provision has since been omitted, and the retrospective effect of that omission has been litigated. Where your position depends on a category that has been amended, the year in question determines the answer.
How has the Income-tax Act 2025 changed this?
The Income-tax Act 2025 consolidates and replaces the Income-tax Act 1961, and the transfer pricing provisions have been renumbered throughout. The substance is carried forward; the citations are not.
Which section replaced Section 92BA?
Specified domestic transactions are now defined at Section 164 of the Income-tax Act 2025. The equivalent provision under the Income-tax Act 1961 was Section 92BA, which continues to govern earlier years.
The wider transfer pricing family moved with it:
| Subject | Income-tax Act 1961 | Income-tax Act 2025 |
|---|---|---|
| Specified domestic transaction | Section 92BA | Section 164 |
| Determination of arm’s length price | Section 92C | Section 165 |
| Reference to the Transfer Pricing Officer | Section 92CA | Section 166 |
| Secondary adjustment | Section 92CE | Section 170 |
| Documentation to be maintained | Section 92D | Section 171 |
| Accountant’s report | Section 92E | Section 172 |
Which rules replaced Rule 10D and Rule 10E?
The Income-tax Rules 2026 replace the Income-tax Rules 1962 and renumber the transfer pricing rules in the same way.
| Subject | Rules 1962 | Rules 2026 |
|---|---|---|
| Determination of arm’s length price | Rule 10B | Rule 79 |
| Most appropriate method | Rule 10C | Rule 80 |
| Documentation to be kept and maintained | Rule 10D | Rule 84 |
| Accountant’s report | Rule 10E | Rule 85 |
| Safe harbour for specified domestic transactions | Rules 10TH to 10THD | Rules 94 to 98 |
A genuinely new rule has also been introduced, permitting an assessee to exercise an option for determination of arm’s length price across multiple years in a single proceeding. That option did not exist under the 1962 Rules.
The accountant’s report itself has been renumbered as well. Form 3CEB has become Form 48. Practitioners who have filed Form 3CEB every year for a decade should note that the form number in their compliance calendar is now wrong.
What documentation must you maintain?
Documentation for specified domestic transactions follows the same prescribed list that applies to international transactions, and it must be contemporaneous, which means prepared by the due date for furnishing the return rather than assembled retrospectively once a notice has arrived.
The core requirements are an ownership and group profile, a description of the transactions and the terms on which they were undertaken, a functional analysis covering the functions performed, the assets employed and the risks assumed by each party, the selection and justification of the most appropriate method, and the benchmarking analysis that supports the price actually adopted.
The functional analysis is where domestic documentation is consistently weakest, largely because the entities involved sit within the same group and the preparer treats the allocation of functions as self-evident rather than as something requiring evidence. A file that describes the transaction accurately but never establishes which entity performs the economically significant functions, controls the commercially significant risks, and owns the assets deployed gives an assessing officer very little to work with, and very little reason to accept the position adopted.
There is a further practical consideration that follows from the aggregation test. Because applicability is determined at the aggregate level, the documentation obligation attaches to every specified domestic transaction once the threshold is crossed, including the individually small arrangements which contributed to the total but which a preparer might otherwise be tempted to omit as immaterial.
What happens if you do not comply?
Non-compliance carries separate penalties for separate failures, and they operate independently of any adjustment to income.
Failure to maintain the prescribed documentation, failure to report a transaction in the accountant’s report, and failure to furnish documents when called for during proceedings are each penalised in their own right. An assessee can therefore face penalty exposure even where the pricing adopted is ultimately accepted.
Where an adjustment is made and the resulting excess money is not repatriated within the prescribed period, the secondary adjustment provisions apply, and notional interest becomes chargeable. Our analysis of the secondary adjustment provisions sets out how that computation works in practice.
Who can prepare transfer pricing documentation for your company?
Documentation for specified domestic transactions should be prepared by a transfer pricing specialist rather than treated as an extension of the annual tax filing. The analysis is economic before it is compliance-driven, and the file has to survive scrutiny by an officer who examines transfer pricing full time.
Steadfast Business Consulting (SBC) provides transfer pricing documentation and benchmarking services covering both cross-border and domestic related-party transactions. The work includes functional analysis, selection of the most appropriate method, benchmarking against reliable comparable sets, and the accountant’s report.
Where an assessment has already commenced, representation is a distinct exercise from documentation. Our note on the transfer pricing assessment procedure sets out the stages, from the reference to the Transfer Pricing Officer through to appellate remedies.
A practical starting point is a review of whether the threshold is crossed at all. Many groups have never aggregated their domestic related-party dealings, and the aggregation is usually a short exercise. Our wider transfer pricing compliance guidance covers the filing obligations that follow once it is.
What should you do before the next filing cycle?
Aggregate every domestic related-party dealing for the tax year and test the total against the ₹20 crore threshold. Do this before the documentation deadline, not after.
If the threshold is crossed, the documentation must be contemporaneous, which in practice means that the functional analysis, the method selection and the benchmarking all have to begin well before the return falls due rather than in the weeks immediately preceding it. If the threshold is not crossed, record the aggregation itself and retain the working, because a schedule showing how the total was arrived at is what demonstrates to an officer that the conclusion was reached deliberately rather than assumed, and it costs almost nothing to prepare at the time compared with reconstructing it two years later.
Businesses seeking guidance on domestic or cross-border related-party transactions may contact our transfer pricing team for an assessment of their current position.
Frequently Asked Questions
Is transfer pricing applicable to purely domestic transactions?
Yes. Specified domestic transactions bring domestic related-party dealings within the transfer pricing regime once their aggregate value exceeds ₹20 crore in the tax year. Below that threshold the provisions do not apply.
What is the threshold for specified domestic transactions?
The aggregate value of all specified domestic transactions must exceed ₹20 crore in the tax year. The Finance Act 2015 raised the threshold from the earlier figure of ₹5 crore.
Which section governs specified domestic transactions now?
Section 164 of the Income-tax Act 2025 defines specified domestic transactions. Section 92BA of the Income-tax Act 1961 governed the same subject and continues to apply to earlier years.
Is Form 3CEB still the correct accountant’s report?
Form 3CEB has been renumbered as Form 48. The substance of the accountant’s report is carried forward, but the form number in existing compliance calendars requires updating.
Does the arm’s length requirement differ for domestic transactions?
No. The same methods and the same most appropriate method test apply. The determination is governed by Section 165 of the Income-tax Act 2025, read with Rules 79 and 80 of the Income-tax Rules 2026.
What penalties apply for non-compliance?
Separate penalties apply for failure to maintain prescribed documentation, failure to report a transaction in the accountant’s report, and failure to furnish documents during proceedings. These operate independently of any adjustment to income. — Sources: Transfer Pricing, Income Tax Department