Under section 92E of Income Tax Act, every person engaged in an international transaction or a specific domestic transaction in the previous year must obtain a report from an accountant and submit it on or before the specified date.

 

A report of audit from a CA must be furnished in the Form 3CEB by every individual who enters into a specific domestic transaction or an international transaction.

Meaning of ‘International Transactions’

A transaction fulfilling the below-mentioned conditions:

  • A transaction which is done between two or more enterprises 

  • At least one must be a Non-resident of India

 

Also, the nature of such a transaction must be of:

  • Sale, lease, or purchase of intangible or tangible property, or borrowing or lending money, or provision of services

  • A mutual arrangement or agreement between more than two associated enterprises and the terms of the transaction are pre-determined like the cost allocation

Meaning of ‘Associated Enterprises’

  • An enterprise in which the people involved in administration, control, or capital, either directly or indirectly or through intermediaries, are the same people who are involved in the other enterprise in a similar way

  • One company controls at least 26% of the voting power in the other company, either directly or indirectly

  • Any person or business owns, directly or indirectly, 26% of the voting power in each of these businesses

  • A loan made by one company to another company that represents at least 51% of the other company's entire assets' book value

  • If one company guarantees at least 10% of the total borrowings of the other company

  • Anyone can appoint more than half of the board of directors or one or more executive directors for each of these businesses

  • When the same person or persons appoint higher than 50% of the directors or members of the governing board, or one or more of the executive directors or members of the governing board

  • Such a company's business is entirely reliant on the know-how, copyright, patent, and secret formula of another company

  • The other enterprise supplies 90% or more of the raw materials and consumables required by one enterprise

  • The items or articles produced by one company are sold to another company, and the prices and other terms are influenced by the other company

  • When one business is controlled by an individual, the other business is likewise controlled by that individual, either directly or indirectly through a relative, or jointly by such individual and his relative

  • One company owns at least 10% of another company, such as a partnership firm, an AOP, or a BOI

  • If there is a mutual interest link between the two businesses

Meaning of ‘Specified Domestic Transactions’

Previously, transfer pricing laws solely applied to cross-border transactions. The Finance Act of 2012, on the other hand, broadened its reach to include certain domestic transactions involving related parties within the country. We'll see which transactions are classified as specified domestic transactions now:

 

"Specified domestic transaction" is:

  • any transaction described in section 80A;

  • any transfer of goods or services that is referred to under section 80-IA(8);

  • any business conducted between the assessee and a third party as defined in section 80-IA(10);

  • any transaction described in any other section of Chapter VI-A or section 10AA that is subject to the provisions of section 80-IA(8)/(10);

  • any business conducted between the individuals listed in section 115 BAB(4);

  • any such transactions that may be deemed necessary

 

and where the assessee's total of such transactions in the previous year surpasses a prescribed quantity of ₹20 Crore. If the threshold limit is exceeded, taxpayers will be forced to comply with transfer pricing requirements for all transactions, regardless of how little or insignificant the value of individual transactions may be.

Applicability of Section 92E of the IT Act, 1961

The provisions of section 92E of the IT Act, 1961, are applicable to the international transactions among more than two Associated Enterprises (AE). One or more parties which are involved in such a transaction should be a non-resident of India. This section is also applicable to the specified domestic transactions (SDT) since the assessment year 2013-14.

 

The Finance Act of 2012 has clarified every kind of arrangement which counts as international transactions. Following are a few of these transactions:

  • Selling, leasing, or purchasing any intangible or tangible property

  • The mutual agreement among more than two Associated Enterprises for an allocation towards the expenses or costs for any facility, service, or benefit

  • Borrowing or lending money

  • Any transaction which leads to income, loss/gain of assets, profit, or loss

  • Transaction between someone except an Associated Enterprise with prior agreement and a corporation

 

Under section 92(3) of the Income Tax Act, 1961, the provisions under Sec 92E are not applicable for the cases where it results in an increase in the reduction or losses in the income taxes in India. The Finance Act of 2009 had framed safe rules of harbour wherein the tax authorities would accept the declared transfer price of the taxpayer. The safe harbour provisions are also applicable to a few domestic transactions which have been specified. This also comprises the tariff with respect to the transmission, wheeling, and supply of electricity, and purchase of the milk products/milk as referred to in Rule 10THB.

Documentation Required to Maintain for International Transactions

As per Rule 10D of the Income Tax Act, 1961, the following documents by maintained by an enterprise owner:

  • MNC group’s profile comprising its tax residence’s country, name, legal status, and address

  • Every Associated Enterprise’s ownership structure along with the details of ownership and details

  • The value of services which are provided and the property which has been transferred

  • Terms and nature of the international transactions

  • SDT for every Associated Enterprise

  • Description of the industries and the businesses of the taxpayers

  • Uncontrolled transactions’ records

  • Details of the assets, risks, and functions of both the enterprises

  • Details of the price of the actual arm’s length

  • Price negotiations, assumptions, and policies to determine the mentioned price

  • Details with respect to the transfer prices’ adjustment

  • Any other document and date which is utilised to determine the arm’s length price

Conclusion

Section 92E of the IT Act, 1961, stipulates that any who enters into the international transactions must furnish and obtain an audited financial report from a Chartered Accountant. The provisions of this section are applicable to two or more than two Associated Enterprises, of which at least one must be a non-resident of India. This particular section also applied to the Specified Domestic Transactions.

Frequently Asked Questions

Is there a penalty if I fail to furnish a report under section 92E?

Yes, there is a penalty of Rs. 1,00,000 which the assessing officer could levy according to the section 271BA.

What is the last date of filing return for an assessee who is covered u/s 92E?

The last date of filing the income tax return is November 30 if the taxpayers cover the transactions which are referred to under Sec 92E of the Income Tax Act.

Will the tax amounts be included in the threshold limit as computed for the specified transactions?

The threshold limit could be computed on the total based on if the assessee avails the credit of taxes, else, on the gross basis.

What is Section 92E of Income Tax Act?

Under section 92E of Income Tax Act, every person engaged in an international transaction or a specific domestic transaction in the previous year must obtain a report from an accountant and submit it on or before the specified date.

Earn interest up to 8.50% p.a. by investing in a Bajaj Finance Fixed Deposit | Rated CRISIL AAA/ STABLE and [ICRA]AAA(stable) Invest Now
Home
active_tab
Loan Offer
active_tab
Download App
active_tab
Credit Score
active_tab