Section 171 · Avoidance of tax
Section 171 of the Income-tax Act, 2025 — Transfer Pricing Documentation Rules
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter X
📜 What the law says — Section 171, Income-tax Act 2025
171. (1) Every person, who—
(a) has entered into an international transaction or specified domestic
transaction; or
(b) is a constituent entity of an international group,
shall keep and maintain such information and document in respect thereof and for
such period and in such manner, as may be prescribed.
(2) The Assessing Officer or the Commissioner (Appeals) may, during any proceeding
under this Act, require any person referred to in sub-section (1)(a) to furnish any
information or document referred therein within ten days from the date of receipt
of a notice issued in this regard.
(3) For the purposes of sub-section (2), the Assessing Officer or the Commissioner
(Appeals) may, on an application made by such person, extend the period of ten
days by a further period not exceeding thirty days.
(4) Every person referred to in sub-section (1)(b) shall furnish the information and
document referred to in sub-section (1) to the authority prescribed under section
511(1), in such manner, on or before such date, as may be prescribed.
(5) For the purposes of this section,—
(a) “constituent entity” shall have the meaning assigned to it in section
511(10)(d);
(b) “international group” shall have the meaning assigned to it in section
511(10)(g).
Report from an accountant to be furnished by persons entering into inter-
national transaction or specified domestic transaction.
172.
E very person who has entered into an international transaction or
specified domestic transaction during a tax year shall obtain a report from
an accountant and furnish such report on or before the specified date in the pre-
scribed form duly signed and verified in the manner as may be prescribed by such
accountant and setting forth such particulars as may be prescribed.
Definitions of certain terms relevant to determination of arm’s length price, etc.
In plain language
What Section 171 is about
Section 171 of the Income-tax Act, 2025 is the transfer-pricing documentation and record-keeping provision. It requires any person who has entered into an international transaction or a specified domestic transaction (SDT) — and any Indian constituent entity of an international group — to prepare, maintain, keep and, when asked, furnish detailed information and documents that prove their related-party pricing is at arm's length. It is the 2025 Act's replacement for the well-known Section 92D of the Income-tax Act, 1961, and it works alongside Rule 10D of the Income-tax Rules, which lists the actual documents.
Who it applies to
- Any taxpayer with international transactions with an associated enterprise where at least one party is a non-resident (as defined in Section 163).
- Any taxpayer with specified domestic transactions once the aggregate SDT value crosses the statutory threshold (₹20 crore).
- Constituent entities of an international group — these have an additional layer of filing (Master File / Country-by-Country Report through the prescribed authority).
Key conditions, thresholds and time limits
- ₹1 crore documentation threshold: Under Rule 10D, detailed (entity-level "Local File") documentation must be maintained only if the aggregate value of international transactions in the year exceeds ₹1 crore. Below this, you must still be able to substantiate the arm's length price, but the full prescribed set is relaxed.
- ₹20 crore for SDTs: Specified domestic transactions attract transfer-pricing documentation only when they cross ₹20 crore in aggregate.
- 10-day notice: The Assessing Officer or Commissioner (Appeals) can issue a notice requiring you to furnish the information/documents within 10 days.
- 30-day extension: On application, this can be extended by a further period not exceeding 30 days.
- 8-year retention: Documents must generally be kept for 8 years from the end of the relevant assessment year (mirroring the old regime).
What documents must be maintained
- Entity/ownership details of the group and associated enterprises.
- Nature and terms of each international transaction, with agreements and invoices.
- Functional analysis — functions performed, assets used and risks assumed (FAR).
- Economic and comparability analysis, the transfer-pricing method chosen, and comparable data.
- Financial statements, budgets and pricing computations supporting the arm's length price.
How it interacts with related sections
Section 171 does not stand alone. Section 161 requires income from international/specified domestic transactions to be computed having regard to the arm's length price; Section 163 defines the international transaction; Sections 165–166 govern the ALP methods; and Section 172 requires the Accountant's Report (Form 3CEB). Under Section 176, transactions with persons in a notified jurisdictional area are deemed to be between associated enterprises, so Section 171 documentation applies to those too. Failure to comply attracts a penalty of 2% of the transaction value for each failure (carried into the 2025 penalty framework, replacing old Sections 271AA/271G/271BA-type consequences).
Practical implications
- Documentation must be contemporaneous — ready by the due date of the return, not created after a notice arrives.
- Even if pricing is genuinely at arm's length, missing paperwork alone can trigger the 2% penalty.
- The Form 3CEB (Section 172) is required irrespective of transaction value — the ₹1 crore threshold only relaxes the detailed Local File, not the accountant's certificate.
💡 Example
Example 1 — Local File threshold: Zephyr Software Pvt. Ltd., Bengaluru, provides IT services to its US parent. In FY 2026-27 it bills the parent ₹4.5 crore. Because this exceeds the ₹1 crore threshold, Zephyr must maintain the full Rule 10D documentation under Section 171, obtain a Form 3CEB (Section 172), and be ready to furnish it within 10 days of any notice. If it fails to furnish, the penalty could be 2% of ₹4.5 crore = ₹9 lakh for that failure.
Example 2 — SDT below threshold: A group with two Indian companies transacts ₹12 crore between them as an SDT. Since this is below the ₹20 crore SDT threshold, the specified-domestic-transaction documentation obligation under Section 171 is not triggered, though ordinary books and evidence must still be kept.
A relatable story: Meera runs the finance team at a small exporter with a UK subsidiary. She always assumed transfer pricing "was only for big MNCs." When the group's inter-company sales hit ₹1.3 crore, her auditor flagged Section 171. They spent a fortnight assembling the functional analysis and comparables before the return due date. Six months later a notice arrived asking for the file within 10 days — because it was already ready, Meera simply uploaded it and avoided a 2% penalty that would have run into lakhs.
| Item | Requirement under Section 171 (r/w Rule 10D) |
|---|
| Old-law equivalent | Section 92D of the Income-tax Act, 1961 |
| Detailed (Local File) documentation trigger | International transactions exceeding ₹1 crore in aggregate |
| Specified domestic transaction (SDT) trigger | SDTs exceeding ₹20 crore in aggregate |
| Time to furnish on notice | 10 days from receipt of notice |
| Maximum extension | Further period not exceeding 30 days |
| Retention period | 8 years from end of relevant assessment year |
| Accountant's Report (Form 3CEB) | Required irrespective of value (Section 172) |
| Penalty for failure to keep/furnish | 2% of the value of each such transaction |
Related sections
Section 161 — Computation of income from international/specified domestic transactions at arm's length price Section 162 — Meaning of associated enterprise Section 163 — Meaning of international transaction Section 164 — Meaning of specified domestic transaction Section 172 — Report from an accountant (Form 3CEB) Section 176 — Special measures for transactions with notified jurisdictional areas
Frequently asked questions
What is Section 171 of the Income-tax Act, 2025?
It is the transfer-pricing documentation provision requiring persons with international or specified domestic transactions to maintain and furnish prescribed information and documents. It replaces Section 92D of the 1961 Act and operates with Rule 10D.
When do I have to maintain detailed transfer-pricing documents?
Detailed Rule 10D (Local File) documentation is mandatory when the aggregate value of your international transactions exceeds ₹1 crore in the year, or when specified domestic transactions exceed ₹20 crore.
How much time do I get to submit documents if the tax officer asks?
You must furnish the information within 10 days of receiving the notice, extendable on application by a further period not exceeding 30 days.
What is the penalty for not maintaining or furnishing documents under Section 171?
A penalty equal to 2% of the value of the relevant transaction can be imposed for each failure to keep or furnish the required information or documents.
For how long must I keep the transfer-pricing documentation?
Documents should generally be retained for 8 years from the end of the relevant assessment year, consistent with the earlier regime.
Do I still need Form 3CEB if my transactions are below ₹1 crore?
Yes. The Accountant's Report in Form 3CEB under Section 172 is required irrespective of transaction value; the ₹1 crore threshold only relaxes the detailed Local File documentation.
Does Section 171 apply to purely domestic group transactions?
Only to specified domestic transactions (SDTs) once they cross ₹20 crore in aggregate; ordinary domestic dealings below this are outside the transfer-pricing documentation net.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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