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TMI BlogHarmonizing India's Secondary Adjustment Regime in Transfer Pricing : Clause 170 of the Income Tax Bill, 2025 Vs. Section 92CE of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... n associated enterprises (AEs) to ensure that profits are allocated in accordance with the arm's length principle. This commentary examines Clause 170 in depth, analyzing its individual components, legislative intent, interpretative challenges, and practical implications. It then systematically compares each provision with the corresponding aspects of Section 92CE, highlighting similarities, distinctions, and potential areas for reform or clarification. Objective and Purpose The legislative intent behind secondary adjustments is to reinforce the effectiveness of transfer pricing regulations by addressing not only the accounting and tax consequences of primary adjustments but also the actual movement of funds between associated enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer and accepted by the assessee; * Pursuant to an Advance Pricing Agreement (APA) u/s 168; * As per safe harbour rules u/s 167; * Arising from Mutual Agreement Procedure (MAP) resolution under a Double Tax Avoidance Agreement (DTAA) as per section 159. * Comparison with Section 92CE(1): The language and structure are almost identical. Both provisions enumerate the same five scenarios, with only the section references updated to reflect the new Bill's numbering. The monetary threshold (INR 1 crore) is retained. Notably, Section 92CE includes specific carve-outs via provisos, such as exclusion for adjustments not exceeding INR 1 crore and for assessment years up to 2016-17, which are not explicitly stated in Clause 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y computed at arm's length rates reflecting the currency and nature of the transaction. * Option to Pay Additional Income-tax * Clause 170(5) introduces an option for the assessee: instead of making a secondary adjustment and computing interest, the assessee may opt to pay an additional income-tax at 18% on the unrepatriated excess money. * Clause 170(6) provides that such tax payment is final and no further credit can be claimed by the assessee or any other person. * Clause 170(7) prohibits deduction under any other provision for the amount on which such tax has been paid. * Clause 170(8) relieves the assessee from the obligation to make a secondary adjustment or compute interest from the date of payment of the additional tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed differently by taxpayers and authorities. * Computation of Interest: The manner of interest computation is delegated to rules, which may lead to disputes over the applicable rate, currency, and compounding method. * Scope of "Associated Enterprise": While Section 92CE refers to Section 92A for the definition of AE, Clause 170 cross-refers to section 173(a) for "arm's length price" but does not explicitly define AE within the clause, potentially requiring reference to the general definitions in the Bill. * Finality and Non-deductibility: The prohibition on further credit or deduction is clear, but the interaction with other provisions (e.g., MAT, carry forward of losses) could give rise to interpretive challenges. Practical Imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for years and amounts Substantially similar; minor updates in section references; carve-outs may be addressed in rules under new Bill Deemed advance & repatriation Deemed advance if excess money not repatriated; explicit that repatriation from any non-resident AE is allowed Identical; explicit clarification via Explanation Concept and effect are the same; new Bill incorporates clarification in main text Interest computation To be prescribed To be prescribed No substantive difference Option to pay additional tax 18% additional tax in lieu of secondary adjustment and interest; finality; no deduction; cessation of interest Same, via sub-sections (2A)-(2D) Mirrors the 2019 amendments to Section 92CE; streamlined presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is essential to avoid disputes. * Interaction with Other Provisions: Further guidance on interaction with other tax provisions (e.g., MAT, carry forward of losses, foreign tax credits) would be beneficial. * Administrative Simplification: Consideration could be given to further simplification for smaller taxpayers or transactions, possibly through increased thresholds or safe harbour rules. Conclusion Clause 170 of the Income Tax Bill, 2025, represents a continuity and consolidation of the secondary adjustment regime first introduced in Section 92CE of the Income-tax Act, 1961. The provisions are largely harmonized, with only minor structural and reference updates, reflecting the maturing of India's transfer pricing framework in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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