The source rule/ statutory provision relating to levy and collection of tax liability on international transactions or specified domestic transaction is empowered through Sec.92 to 92F of the income Tax Act, 1961. these provisions were inserted by the Finace Act, 1976.
Transfer pricing is a mechanism or exercise through which price for tansfer or say transfer price, of, tangibles, intangibles , services, Capital financing etc. is computed. Mechanism to compute an arm's length price is given in section 92C of the income Tax act read with Rule 10B and Rule 10C.
Transfer pricing provision on specified domestic transactions are applicable from FY 2012-13/AY 2013-14.
Transfer Pricing Method
In order to ensure that a transfer price meets the arm's length standard, the OCED( Organization for the Economic Co-operation and Development) guidelines have indicated five tranfer pricing methods that can be used. these methods fall in two categories:
(1) Traditional Transaction Methods;
(2) Transactional Profit Methods.
As per Sec.92C of the income Tax Act, 1961, the methods for determining Arm's Length price may be represented as under:
a) Comparable Uncontrolled Price Method,
b) Resale Price Method,
c) Cost Plus Method,
d) Profit Split Method,
e) Transactional Net Margin Method,
f) Such other method as may be prescribed by Board
Penalty Provisions- Transfer Pricing
|S.No||Type of penalty||Section||Penalty Quantified|
a) Failure to maintain prescribed information /documents
b)Failure to report any such transaction or
c)Furnish incorrect information
|271AA||2% of Transaction value|
|2||Failure to furnish information/document during assessment u/s 92D||271G||2% of tansaction value|
|3||Adjustment to taxpayer's income during assessment||271(1)(c)||100% to 300% of tax on adjustment amount|
|4||Failure to furnish accountant's report u/s 92E||271BA||INR 100000|