Section 92 of the Income Tax Act 1961 and Section 161 of the 2025 Bill

Transfer pricing is a core part of India’s tax law. It requires international transactions, and specified domestic transactions, between associated enterprises to be priced at arm’s length. Section 92 of the Income Tax Act, 1961, sets that rule today. Section 161 of the Income Tax Bill, 2025, restates it. Both sections keep fair pricing between associated enterprises.

Both sections aim at the same end. The 2025 Bill, though, brings some changes in structure and process. I compare the two below.

1. Purpose and Scope of Section 92 and Section 161

Both Section 92 (1961 Act) and Section 161 (2025 Bill) ensure that transactions between associated enterprises (AEs) follow the arm’s length principle. This covers:

• International transactions between related parties.

• Specified domestic transactions, which were included under Section 92 by the Finance Act, 2012.

In short, these rules stop a group using its prices to shift profit and avoid tax. Any income, expense or cost from such transactions must be taken at fair market value, that is, at arm’s length price.

2. Key Provisions and Comparisons

1. Computation of Income Based on Arm’s Length Price

2. Allowance for Expenses or Interest

3. Cost Sharing Agreements Between Associated Enterprises

4. Restriction on Reduction of Taxable Income

3. Key Differences Between Section 92 and Section 161

1. Structural Reorganisation and Modernisation

2. Clarity on Specified Domestic Transactions (SDTs)

3. Consistency with International Best Practices

4. Updated Terminology and Cross-Referencing

4. Implications for Businesses

For multinational groups, large firms and any entity with cross-border deals, the move from Section 92 to Section 161 means:

• No big change in compliance—transfer pricing documentation and arm’s length pricing still apply.

• Simpler rules—the 2025 Bill makes transfer pricing norms easier to read and apply.

• More focus on fair pricing in domestic transactions—groups with specified domestic transactions, such as deals between related Indian companies with large tax benefits, must ensure compliance.

5. Final Thoughts

The move from Section 92 (1961 Act) to Section 161 (2025 Bill) does not change the substance of India’s transfer pricing rules. The new framework aims to make compliance smoother and closer to global norms.

For groups that work in more than one country, that continuity in transfer pricing rules gives a stable and predictable tax outcome. Process may change under the Income Tax Bill, 2025. The core transfer pricing principles stay as they are.