Secondary Adjustment under Section 92CE
Calculation, Repatriation Timelines and Practical Issues under Rule 10CB
A primary transfer pricing adjustment increases taxable income or reduces a loss. Section 92CE addresses the corresponding cash imbalance—the additional amount that should have been received from the overseas Associated Enterprise (“AE”).
Where section 92CE applies, the taxpayer must either:
- Repatriate the excess money to India within the prescribed period; or
- Treat the unrepatriated amount as a deemed advance and offer interest income; or
- Exercise the option to pay additional income tax on the unrepatriated amount.
Key point: Payment of tax on the primary transfer pricing adjustment does not, by itself, complete the secondary-adjustment compliance.
When Does Section 92CE Apply?
A secondary adjustment is required where the primary adjustment arises through any of the following routes:
| Trigger | Treatment under Section 92CE |
|---|---|
| Suo motu adjustment | Voluntarily made by the taxpayer in its return of income |
| Assessment adjustment | Made by the Assessing Officer and accepted by the taxpayer |
| Advance Pricing Agreement | Determined under an APA entered into on or after 1 April 2017 |
| Safe Harbour | Made in accordance with the Safe Harbour Rules |
| Mutual Agreement Procedure | Arising from a MAP resolution |
Section 92CE does not apply where:
- The primary adjustment made in a previous year does not exceed INR 1 crore; or
- The primary adjustment relates to an assessment year commencing on or before 1 April 2016.
The INR 1 crore threshold applies to the amount of the primary adjustment—not to the value of the underlying international transaction.
Further, an adjustment made by the Assessing Officer triggers section 92CE only when it is accepted by the taxpayer. Where the adjustment remains under dispute, the secondary-adjustment position should be aligned with the status of the appeal.
What Is Excess Money?
“Excess money” represents the difference between:
- The arm’s length price determined through the primary adjustment; and
- The price at which the international transaction was actually undertaken.
Consider an Indian company that provided services to its overseas AE for INR 10 crore. The arm’s length consideration is subsequently determined at INR 13 crore.
The resulting primary adjustment and excess money would be INR 3 crore.
Section 92CE permits the excess money to be repatriated by any non-resident AE of the taxpayer. Therefore, the remittance need not necessarily be made by the AE involved in the original transaction.
However, where another AE repatriates the amount, the taxpayer should properly document:
- The reason for payment by that AE;
- The underlying intercompany settlement;
- The corresponding ledger entries; and
- The linkage between the remittance and the primary adjustment.
The 90-Day Repatriation Period
Rule 10CB allows 90 days for repatriating the excess money. The starting point depends on how the primary adjustment arose.
| Source of Primary Adjustment | Starting Point for 90 Days | Interest Commencement if Not Repatriated |
|---|---|---|
| Suo motu adjustment in the return | Due date under section 139(1) | Same due date |
| Assessment adjustment accepted by the taxpayer | Date of the Assessing Officer’s or appellate authority’s order | Same order date |
| APA entered into on or before the return due date | Actual date of filing the return | Statutory return due date |
| APA entered into after the return due date | End of the month in which the APA is entered into | Same month-end |
| Safe Harbour | Due date under section 139(1) | Same due date |
| MAP resolution | Date on which the Assessing Officer gives effect to the MAP resolution | Same date |
The APA distinction is important.
Where the APA is entered into on or before the return due date, the 90-day period runs from the actual date of filing the return. However, where repatriation does not happen within the prescribed period, interest runs from the statutory return due date.
Interest Does Not Start after 90 Days
The 90-day period is a repatriation window. It is not an interest-free period once the deadline is breached.
If the excess money is not repatriated within 90 days, interest is calculated from the relevant starting date prescribed under Rule 10CB—not from the 91st day.
For example:
- Return due date: 30 November 2026
- Repatriation deadline: 90 days from 30 November 2026
- Excess money not repatriated within the prescribed period
Interest will be calculated from 30 November 2026, rather than from the date on which the 90-day period expires.
This is one of the most common errors in secondary-adjustment calculations.
Prescribed Interest Rate
Rule 10CB prescribes the following rates:
| Transaction Currency | Interest Rate under Rule 10CB |
|---|---|
| Indian rupees | SBI one-year MCLR as on 1 April of the relevant previous year plus 325 basis points |
| Foreign currency | Six-month LIBOR as on 30 September of the relevant previous year plus 300 basis points |
For an international transaction denominated in foreign currency, its value in Indian rupees must be calculated using the telegraphic transfer buying rate of that currency on the last day of the previous year in which the international transaction was undertaken.
Practical Issue with LIBOR
Rule 10CB continues to refer to six-month LIBOR even though LIBOR publication has ceased.
A taxpayer should not automatically substitute SOFR, SONIA or another reference rate and present it as the rate prescribed under Rule 10CB. Any alternative benchmark adopted should be supported by:
- The current statutory position;
- Applicable CBDT or administrative guidance;
- The relevant currency and replacement benchmark; and
- A properly documented legal position.
Secondary-Adjustment Calculation
Assume that an Indian company makes a voluntary primary adjustment in its income-tax return with the following facts:
| Particular | Amount or Assumption |
|---|---|
| Primary adjustment | INR 4.00 crore |
| Return due date | 30 November 2026 |
| Amount repatriated within 90 days | INR 1.50 crore |
| Balance not repatriated | INR 2.50 crore |
| SBI one-year MCLR (A) | 8.50% |
| Spread as per Rule 10CB (B) | 3.25% |
| Illustrative interest rate (A+B) | 11.75% |
| Interest period up to 31 March 2027 (1 Dec 2026 to 31 March 2027) |
121 days |
The notional interest would be calculated as follows:
Interest = Outstanding excess money × Applicable interest rate × Number of days ÷ 365
Interest = INR 2.50 crore × 11.75% × 121 ÷ 365
Notional interest = Approximately INR 9.74 lakh
Interest is calculated only on the INR 2.50 crore remaining outstanding.
Where further amounts are repatriated in instalments, the calculation should be performed period-wise on a reducing balance.
- The applicable interest rate should also be reviewed separately for every subsequent previous year until:
- The entire excess money is repatriated; or
- Additional income tax is paid under section 92CE(2A).
Option to Pay Additional Income Tax
Where the excess money is not repatriated within the prescribed period, the taxpayer may pay additional income tax under section 92CE(2A).
The statutory rate is 18%. After including surcharge at 12% and health and education cess at 4%, the effective rate is 20.9664%.
Based on the above example, the additional-tax calculation would be:
| Component | Calculation | Amount |
|---|---|---|
| Unrepatriated excess money | INR 2,50,00,000 | |
| Additional income tax | 18% | INR 45,00,000 |
| Surcharge | 12% of tax | INR 5,40,000 |
| Health and education cess | 4% of tax and surcharge | INR 2,01,600 |
| Total additional tax | 20.9664% | INR 52,41,600 |
The additional tax is treated as the final payment of tax in respect of the covered excess money.
The following consequences should be noted:
- No credit for the additional tax can be claimed by the taxpayer or any other person;
- No deduction is available for the amount on which the additional tax has been paid;
- Interest must still be calculated up to the date on which the additional tax is paid; and
- No further secondary adjustment or interest is required from the date of payment for the amount covered by the tax.
Therefore, if the additional tax is paid on 31 March 2027 in the above example, the taxpayer must consider both:
Notional interest up to 31 March 2027; and
Additional tax of INR 52.42 lakh.
Repatriation versus Additional Tax
The additional-tax option should not be selected automatically. The financial and practical consequences of both alternatives should be compared.
| Factor | Repatriation and Interest | Additional-Tax Option |
|---|---|---|
| Immediate cash cost | Interest until repatriation and tax on interest income | Effective tax of 20.9664% plus interest up to payment |
| Future exposure | Continues while the amount remains outstanding | Stops from the payment date for the covered amount |
| Recovery from AE | Repatriation continues to be required | Secondary-adjustment obligation ends |
| Tax credit | Normal tax treatment applies to interest income | No credit for additional tax |
| Suitable where | Repatriation is possible within a reasonable period | Repatriation is unlikely or recurring interest becomes inefficient |
The decision should consider:
- Expected repatriation date;
- Applicable annual interest rate;
- Tax payable on imputed interest;
- Foreign-exchange and banking restrictions;
- Financial position of the AE;
- Ability to establish and recover a legally enforceable receivable;
- Accounting implications; and
- Cash-flow impact of paying 20.9664% upfront.
The additional-tax option is a closure mechanism. It should not be treated as the default method merely because the prescribed repatriation period has expired.
Common Errors
| Error | Correct Approach |
|---|---|
| Treating tax on the primary adjustment as complete compliance | Evaluate repatriation and secondary adjustment separately |
| Starting interest after 90 days | Compute interest from the Rule 10CB trigger date once the deadline is breached |
| Calculating interest on the original balance | Use the outstanding balance after each valid repatriation |
| Using the same rate for all subsequent years | Determine the prescribed rate for each relevant previous year |
| Automatically replacing LIBOR with SOFR | Adopt only a legally supportable position under the current Rules or guidance |
| Ignoring the disputed status of an assessment adjustment | Confirm whether the adjustment has been accepted |
| Treating an unrelated group receipt as repatriation | Maintain a clear banking and documentary trail |
| Ignoring accounting and foreign-exchange implications | Coordinate the treatment with the auditor, treasury and legal teams |
Final Takeaway
Secondary adjustment is a cash-alignment requirement that follows a qualifying primary transfer pricing adjustment.
A defensible secondary-adjustment file should clearly establish:
- The statutory trigger;
- The amount of excess money;
- The correct 90-day period;
- The dates and amounts repatriated;
- The outstanding balance;
- The prescribed interest rate;
- The period for which interest is calculated; and
- The basis for choosing between repatriation and additional tax.
Most practical errors arise from an incorrect commencement date, failure to recognise interest from the original trigger date, unsupported repatriation or continued calculation on the original balance after partial recovery.
The formula is straightforward. The real risk lies in the dates, documentation and treatment of the outstanding amount.