Transfer Pricing for Domestic Group Companies — What Section 92BA Actually Requires

The Myth That Costs Domestic Groups the Most

"We don't have a foreign parent, so transfer pricing doesn't apply to us." This single sentence — said with complete confidence by finance teams, founders, and even some general practice accountants — is responsible for more undetected tax exposure among Indian promoter-led businesses than almost any other misconception in corporate tax compliance.

It is true that the transfer pricing provisions most people have heard of — Sections 92 to 92F of the Income Tax Act 1961 — were originally designed to police cross-border pricing between multinational group entities. But Indian tax law does not stop there. Since the Finance Act 2012, Section 92BA has extended a version of the same arm's length discipline to certain transactions between related parties, both of whom are resident in India, with no foreign element involved anywhere in the transaction. These are called Specified Domestic Transactions, or SDTs.

The businesses most exposed to this are exactly the ones least likely to know it applies to them: family-run manufacturing groups that have split operations across a manufacturing entity and a marketing or trading entity, real estate developers who separate the landholding company from the construction or operating company, promoters who set up a second entity for a new product line or geography under common ownership, and any group where directors, their relatives, or entities they control transact with each other above a certain scale. None of these structures involve a single foreign party. All of them can trigger Section 92BA.

What Section 92BA Actually Covers

Section 92BA defines a "Specified Domestic Transaction" as any of the following, where the aggregate value in a financial year exceeds the prescribed threshold:

For the overwhelming majority of purely Indian corporate groups without SEZ units, infrastructure undertakings, or other deduction-linked businesses, the Section 40A(2)(b) route is the one that actually matters — and it is worth understanding in detail, because its definition of "related party" is considerably broader than most promoters assume.

The ₹20 Crore Threshold — How It's Computed

Section 92BA applies once the aggregate value of specified domestic transactions in a financial year exceeds ₹20 crore. Two aspects of this threshold routinely trip up groups that have never had it explained clearly.

First, the threshold is aggregate, not per-transaction and not per-related-party. Every Section 40A(2)(b) payment across the financial year — rent paid to a promoter-owned entity, purchases from a group company, management or consultancy fees paid to a related party, interest on loans from related parties, salaries or remuneration to relatives of directors above ordinary market terms — is added together. A group that assumes it is safe because no single transaction crosses ₹20 crore individually is applying the wrong test entirely.

Second, once the aggregate threshold is crossed, every Section 40A(2)(b) transaction for that financial year becomes a Specified Domestic Transaction requiring arm's length pricing and documentation — not merely the transactions that pushed the total over the line. A group with fifteen separate related-party payments, only three of which are individually large, still needs to document and defend all fifteen once the aggregate crosses ₹20 crore.

Section 40A(2)(b) — The Most Common Trigger

Because this is the provision that actually catches most ordinary Indian promoter groups, it is worth understanding exactly who counts as a "related party" for this purpose. Section 40A(2)(b) casts a wide net: it includes any director of the company and their relatives, any individual who has a substantial interest in the business and their relatives, any company, firm, association of persons, or Hindu Undivided Family with a substantial interest in the company (and their directors, partners, members, or relatives), and any company of which a director of the taxpayer company is also a director.

In practice, this means transactions with an entity that shares even one common director, a company substantially owned by the same promoter family, or a relative-controlled business are all within scope — well beyond the more intuitive idea of "our two group companies."

Structures That Get Caught Without Realising It

Certain group structures recur often enough in Indian business that they deserve specific mention, because each one routinely crosses the Section 92BA threshold without the promoters ever connecting their structure to the provision.

Documentation & Form 3CEB for a Domestic-Only Case

Once Section 92BA applies, the compliance mechanics closely mirror international transfer pricing — Rule 10D documentation and Form 3CEB filing — but applied entirely within a domestic context, which creates its own practical differences worth understanding.

The taxpayer must maintain contemporaneous documentation demonstrating that each Specified Domestic Transaction was priced at arm's length, using one of the prescribed methods, supported by a benchmarking analysis. An accountant's report in Form 3CEB, certifying the arm's length nature of the transactions, must be filed alongside the return — which also extends the filing deadline to 30 November rather than the standard 31 October.

The practical challenge in a purely domestic case is often benchmarking itself: for international transactions, well-developed databases of foreign comparables exist for many transaction types. For a domestic-only case — particularly for something like intra-group rent, informal management services, or machining arrangements specific to a regional industry — building a genuinely comparable set requires more bespoke analysis, not a database lookup. This is precisely where a general compliance engagement, built around filing the form rather than building the underlying economic case, tends to produce the weakest documentation.

Two of the five prescribed pricing methods tend to dominate domestic SDT work in practice. The Comparable Uncontrolled Price (CUP) method — comparing the related-party price directly against an independent transaction for the same or similar goods or services — works well for commodities, standard rental markets, and straightforward goods transfers where genuinely comparable independent transactions can be identified locally. The Cost Plus Method tends to fit better for intra-group services and manufacturing arrangements where the related entity performs a defined, limited-risk function — machining, contract manufacturing, or shared services — and an appropriate markup over cost can be benchmarked against what an independent service provider would charge for a comparable function. Choosing between them, and defending that choice, is itself part of what separates a documented position from a bare assertion.

The Double Taxation Trap

This is the consequence of a domestic transfer pricing dispute that surprises promoters more than any other, because it has no equivalent in ordinary domestic tax disputes. When an assessing officer makes a transfer pricing adjustment — say, disallowing a portion of a management fee paid by Company A to Company B as excessive under Section 40A(2)(b) — the disallowed amount is added back to Company A's taxable income. But Company B, which actually received that fee and already paid tax on it as income, does not automatically get a corresponding reduction in its own taxable income.

The result is that the same rupee of economic value can be taxed twice within the same group — once via the disallowance on the payer, and again via the tax the recipient already paid on the same amount as its own income. For international transactions, a taxpayer facing this kind of double taxation has some recourse through the Mutual Agreement Procedure under an applicable tax treaty, allowing the two countries' tax authorities to negotiate relief. A purely domestic dispute has no equivalent mechanism. There is no treaty, no foreign competent authority to invoke, and no MAP process — the group's only path to relief is the ordinary Indian appellate process, on the department's own timeline, for both entities separately.

Safe Harbour Rules — Do They Apply to Domestic Transactions?

Businesses that have looked into international transfer pricing sometimes ask whether Safe Harbour Rules — the prescribed margins that let a taxpayer avoid further scrutiny on certain transaction categories — offer a similar shortcut for Specified Domestic Transactions. They do not, in any meaningful sense. Safe Harbour Rules under Rule 10TA onwards are specifically scoped to particular categories of international transactions — IT and ITeS services, contract R&D, certain low-value-adding intra-group services, and a handful of other defined categories — and do not extend to Section 40A(2)(b) domestic payments. A domestic group cannot elect into a prescribed safe margin to sidestep benchmarking; the arm's length analysis has to be built specifically for the transaction, every time.

Advance Pricing Agreements are similarly unavailable for purely domestic transactions in the way they exist for international ones — the APA framework under Sections 92CC and 92CD is built around international transactions and associated enterprises with a cross-border dimension. This absence of both shortcuts is part of why domestic groups often end up under-prepared: because neither Safe Harbour nor APA exists as an option, there is no obvious "easy route" prompting a group to think seriously about its transfer pricing position in the first place — the only path is proper benchmarking and documentation, done well, or not done at all.

What a Scrutiny Assessment Actually Looks Like

It helps to understand, concretely, how a Section 92BA issue typically surfaces and unfolds, because the process is different from an ordinary tax scrutiny in several respects that catch unprepared groups off guard.

A case is usually referred to a Transfer Pricing Officer once the assessing officer notices related-party transactions on the face of the tax audit report (Form 3CD discloses Section 40A(2)(b) payments even before Section 92BA is separately considered) that appear disproportionate to the taxpayer's scale, or where the aggregate crosses the ₹20 crore threshold but no Form 3CEB was filed. The TPO's role is specifically to examine whether the reported price reflects arm's length value — a different, more specialised line of questioning than a general assessing officer would pursue on an ordinary expense disallowance.

Once a TPO is involved, the burden effectively shifts to the taxpayer to justify the pricing with documented analysis. Groups that show up to this stage with nothing beyond invoices and a broad assertion that "the price was fair" are in a materially weaker position than groups that can produce a contemporaneous benchmarking study, however modest, prepared at the time the transactions occurred. The TPO's proposed adjustment then flows into the assessment order, triggering the tax, interest, and penalty consequences described earlier — and because Section 92BA disputes are still a comparatively newer and less-litigated area than international TP, precedent is thinner, giving tax officers more latitude to take an aggressive position than they might on a more settled question.

Domestic SDT vs. International Transfer Pricing

Common Mistakes We See

• Assuming "domestic" means "no transfer pricing" — the single most expensive misconception, and the one this article exists to correct.
• Testing only the largest transaction against the threshold, rather than aggregating every Section 40A(2)(b) payment across the financial year.
• Pricing informally "because it's family" — related-party status is precisely what triggers the arm's length requirement; informality is the risk, not a defence against it.
• Excluding interest-free or below-market related-party loans from the aggregate calculation, on the assumption that no interest means no transaction to price.
• Treating remuneration to relatives as a pure HR matter, never checked against whether the amount is reasonable for the role under Section 40A(2)(b).
• Preparing Form 3CEB documentation retrospectively, purely to meet the extended filing deadline, rather than contemporaneously as pricing decisions are made.
• Assuming a general CA firm's annual engagement already covers this — Section 92BA is unfamiliar even to many experienced general practitioners, precisely because cross-border transfer pricing dominates most training and practice.

How LexWin Can Help

LexWin advises purely Indian corporate groups — family businesses, promoter-led groups with multiple related entities, and holding-operating structures — on Specified Domestic Transaction compliance under Section 92BA, alongside the international transfer pricing work we do for foreign-owned subsidiaries. This is exactly the underserved segment most transfer pricing advisory in India overlooks by default.

Who Needs This — and When

Domestic Transfer Pricing Readiness Checklist — 10 Questions to Ask

Run this quick diagnostic against your group's related-party transactions, even if every party involved is Indian. If you answer "no" or "unsure" to more than three, Section 92BA exposure is likely present and undocumented.

• Do any of your group companies share a common director, or are they owned substantially by the same family or promoters?
• Have you aggregated every Section 40A(2)(b) payment across the financial year — rent, purchases, fees, interest, remuneration — against the ₹20 crore threshold?
• Is intercompany rent, if any, supported by an independent market valuation rather than a figure set informally between related parties?
• Are management or consultancy fees between group entities backed by evidence that the services were actually rendered?
• Have interest-free or below-market related-party loans been reviewed for their transfer pricing implications, not just excluded because no interest was charged?
• Is remuneration paid to relatives of directors benchmarked against what the role would command in the open market?
• If Section 92BA applies, is your Form 3CEB documentation prepared contemporaneously, not assembled retrospectively for the extended filing deadline?
• Does your current CA or tax advisor have specific experience with domestic transfer pricing, or only with statutory audit and general compliance?
• Has your group structure changed in the last financial year — new entity, new related-party transaction type — without a corresponding SDT review?
• If challenged on assessment, could your group demonstrate — with contemporaneous evidence — that each related-party payment reflects an arm's length price?