Written by Jayasri P · Last updated 20 August 2026 · Statutory references current to the Income-tax Act 2025 and the Income-tax Rules 2026.
Run one when something has changed: a new intra-group arrangement, a group restructuring, a swing in margins, a first crossing of a reporting threshold, a change of adviser, or an assessment on the horizon. A health check is diagnostic. It tests an existing position before the department does.
Most transfer pricing problems announce themselves a year before anybody reacts. Margins moved, the intra-group service charge was never papered, the benchmarking set was carried forward without being refreshed, and none of it looked urgent at the time, because nothing in the compliance calendar forces a company to revisit a position it has already taken. Cheapest of all hours in transfer pricing is the one spent before a notice arrives.
What is a transfer pricing health check?
A diagnostic assessment of a company’s current transfer pricing position, run outside the annual compliance cycle. Nothing is filed and no form is produced; what comes out of it is a gap report, a written analysis of where the position holds, where it is thin, and what would repair the difference.
Steadfast Business Consulting (SBC) lists a transfer pricing health check-up among its advisory offerings alongside transfer pricing due diligence. Related, but distinct: due diligence examines a target or a counterparty in a transaction, whereas a health check turns the same lens on the company commissioning it. Both are risk assessments rather than compliance deliverables, and neither produces a filing.
When should you run a transfer pricing health check?
When the facts supporting your last recorded position have changed, or when someone outside the company is about to examine that position. Six events account for most of the reviews that prove worth commissioning.
| Trigger | What it puts at risk | When to review |
|---|---|---|
| New intra-group arrangement | Pricing set without a benchmark; no agreement in place | Before the tax year closes |
| Group restructuring | Functional profile no longer matches the documentation | Within the year of the change |
| Material change in margins | Result falls outside the arm’s length range | At the half year, not at year end |
| First crossing of a threshold | Reporting obligation missed entirely | The year the threshold is crossed |
| Change of adviser | Positions inherited without their reasoning | Before the first filing under the new adviser |
| Approaching assessment | Multiple years opened together | As early as the notice window allows |
Why does a new intra-group arrangement need reviewing before the year closes?
Because pricing is far easier to justify than to correct. Management charges, royalties, intra-group loans and guarantees introduced halfway through the year get priced by reference to whatever the group already does elsewhere. Commercial answers are not arm’s length answers, and the difference only becomes expensive once the year has closed and the price sits on the record.
Evaluate the arrangement while the year is still open and there is room to set the rate on a benchmark, to execute the inter-company agreement that supports it, and to build the cost pool the charge is drawn from; once the year closes, that same process turns into an explanation.
Why does a change of adviser justify a review?
Because positions are inherited without the reasoning that produced them. Benchmarking studies transfer as files, but their rationale, meaning why those comparables, why that method and why those economic adjustments, usually does not travel with them, and a new adviser who rolls a study forward without testing it repeats a conclusion rather than reaching one.
How early before an assessment should a review happen?
As early as the notice window allows, since the position under examination is rarely a single year. Rule 82 of the Income-tax Rules 2026 is new, and it permits the arm’s length price to be determined across multiple tax years in one proceeding, so a weakness in one year’s analysis can now travel across every year grouped with it. Once the reference to the Transfer Pricing Officer has been made, a review becomes a defence exercise rather than a diagnostic one.
What does a transfer pricing review examine?
The transaction record, the pricing, the documentation and the consistency between them. Repeating the benchmarking study is not what a transfer pricing risk assessment means. It tests whether the position as filed would survive a reading by someone looking for a reason to adjust it.
Reviews of this kind typically cover:
- Completeness of the related-party transaction record, including arrangements never invoiced and services charged at cost with no mark-up
- Whether the method selected to determine the arm’s length price remains the most appropriate one for the transaction as it is now structured
- Whether the comparable set has been refreshed, and whether the tested party’s result still falls within the range
- Whether the functional profile in the documentation still describes the assets employed, functions performed and risks borne by the Indian entity
- Whether inter-company agreements exist, are executed, and match what actually happens
- Whether segmental financial information is capable of being drawn where the entity runs more than one line of business
- Consistency with positions taken in earlier years and with any adjustment already accepted
What does the review test on the numbers?
Whether the reported result is inside the range and, if it is not, whether the reason is documented. Perfectly defensible reasons move margins, among them capacity underutilisation, a forex swing, an extended start-up phase or a working capital difference against the comparable set, and each can be quantified as an economic adjustment. What cannot be defended is a result falling outside the range with no explanation attached to it.
What does a gap report contain?
A finding, a consequence and a remedy for each issue, ranked by exposure. Enumerating findings and stopping there defeats the purpose, because the value of the exercise lies in knowing which findings would actually cost something and which are merely housekeeping.
| Element | What it answers |
|---|---|
| Finding | What the review found, and in which year |
| Statutory exposure | Which provision the gap sits under, and the quantum |
| Adjustment risk | The likely size of an adjustment if the position is challenged |
| Remedy | What repairs it, and whether it can still be done for that year |
| Priority | What must be fixed before the next filing, and what can wait |
Whether commissioning the report was worth the expenditure is usually settled by the remedy column, because some gaps close cheaply: executing an agreement that was always intended, refreshing a comparable set, or drawing a segmental profit and loss statement the accounting system can already support. Others cannot be closed retrospectively at all, and knowing which is which before the year closes is the entire point of running the review early.
How is a health check different from preparing documentation?
Documentation records a position. A health check tests one. Prescribed work with a deadline, governed by section 171 read with Rule 84 of the Income-tax Rules 2026, the documentation exercise produces the record the taxpayer must maintain. No deadline, no prescribed contents and no filing attach to a health check.
One practical distinction matters most, and finance teams tend to discover it too late: a documentation engagement takes its scope from the need to produce a compliant file, so it looks at the facts and the price handed to it, whereas a health check takes its scope from the questions asked. Hence a study can produce a compliant file and still describe an arrangement that no longer exists.
| Health check | Documentation | |
|---|---|---|
| Purpose | Diagnose exposure | Record and support the position |
| Trigger | An event or a change | The tax year |
| Timing | Any time, ideally mid-year | Before the reporting deadline |
| Output | Gap report with remedies | The prescribed record under Rule 84 |
| Consequence of skipping | Undetected exposure | A penalty under statute |
What does leaving a position unexamined cost?
More than the review would have, in the majority of cases where an adjustment follows. Failure to keep and maintain the prescribed documentation attracts a penalty of two per cent of the value of each transaction under section 442 of the Income-tax Act 2025, and because that penalty is calculated on transaction value rather than on the adjustment, it does not scale down when the underlying position turns out to be broadly correct.
What happens if the accountant’s report is late?
Failure to furnish the accountant’s report is now treated differently. Section 447 was omitted by the Finance Act 2026 with effect from 1 April 2026, and the consequence moved into section 428(4)(d) as a fee of ₹50,000 for a delay of up to one month and ₹1,00,000 thereafter, and because that fee attaches on the facts, no reasonable-cause argument is available against it.
Is the adjustment larger than the penalty?
Commonly, the more substantial number is the adjustment rather than the penalty. Where a reference is made to the Transfer Pricing Officer under section 166, the officer determines the arm’s length price for the transactions referred; an adjustment then carries interest and may pull a secondary adjustment under section 170 behind it, and the full position on each default is set out in transfer pricing penalties.
Which firm should I hire for transfer pricing documentation?
One that examines the position before it starts drafting the file. Treat documentation as a production exercise and the pricing handed over gets faithfully recorded, compliant and quiet and of very little use once the arrangement being recorded stopped matching the facts two years earlier.
Who are the firms in this market?
The provider landscape runs from global network firms through established domestic practices to transfer pricing boutiques, and firms such as Deloitte, EY, Grant Thornton, BDO, Nangia and Dhruva operate in this space alongside specialist practices. No firm is correct in the abstract. How to evaluate one is a narrower question, dealt with separately in choosing a transfer pricing consultant.
What should you insist on before appointing anyone?
Whatever your choice, a diagnostic first pass is worth insisting on. SBC was recognised as a Notable Transfer Pricing Firm 2024 by ITR World Tax, its transfer pricing team is built by Big 4 alumni, and it holds access to the Indian and global comparable databases a review of this kind depends on, including Prowess, CapitalineTP, Amadeus, Orbis and RoyaltyRange. Health check-up, transfer pricing due diligence, documentation, the accountant’s report and representation through assessment all sit within the transfer pricing services practice.
Where the related-party position has not been examined in the last twelve months, that examination is the work to schedule first. Ask the SBC team for a scoping call on where your current position stands.
Frequently Asked Questions
Is a transfer pricing health check required by law?
No. Nothing in law requires one, and nothing is submitted at the end of it. Health checks are voluntary risk assessments; binding obligations run elsewhere, namely documentation under section 171 read with Rule 84, and the accountant’s report under section 172.
How often should a transfer pricing review be run?
Annually for any group engaged in cross-border transactions of any size, and immediately on any of the six trigger events. Where functional profile and arrangements have been stable, a full review every second year is reasonable, provided the comparable set is still refreshed each year.
What is the difference between a health check and transfer pricing due diligence?
A health check examines your own position. Due diligence examines someone else’s, typically the target or the counterparty in a transaction, to establish what exposure would travel with the deal; analysis is similar in both, but subject and purpose are not.
Can a health check fix a position for a year that has already closed?
Partly. Some remedies survive the year end: refreshing the analysis, executing agreements, or making a voluntary transfer pricing adjustment. Others, among them changing how a charge was raised or priced, cannot be applied retrospectively, since they would create a fresh inconsistency in the record.
Does a health check trigger scrutiny by the department?
No. Internal throughout, the gap report goes to nobody outside, and commissioning one creates no reporting obligation. What changes is what the company knows about its own exposure before the department forms its own view of the same transactions.
When in the year is the best time to run one?
At the half year, while the result can still be influenced. Run then, the review leaves room to correct pricing, raise or reverse a charge, and refresh the benchmarking before the year closes. Run after the year end, it can only describe what has already happened.