My Comparison of Section 162 (Bill 2025) with Section 92A (Act 1961)

The idea of associated enterprises (AEs) sits at the heart of transfer pricing. The test decides which related-party deals the law examines. It exists to stop profit shifting inside a group.

The Income Tax Act, 1961 set out the definition in Section 92A. The Income Tax Bill, 2025 replaces it with Section 162. The new section keeps the same core test. The drafting is different, and tighter.

1. The Definition of Associated Enterprise in Both Sections

Both sections define an associated enterprise by asking one question. Do the two entities have a close economic link? If they do, that link can shape the prices they set.

The definition decides which deals face the arm’s length principle. It also closes an easy route to tax avoidance. A group cannot price a related-party deal on terms no outsider would accept.

2. Key Provisions and Comparisons

Definition of Associated Enterprise

• Section 92A (1961 Act): An enterprise is associated if it shares in the management, control or capital of another. The share can be direct or indirect. The test looks at influence, not ownership alone.

• Section 162 (2025 Bill): The wording is new. The core definition is not. Two entities are still tested on the same footing.

Criteria for Determining Associated Enterprises

Both sections list the conditions that make two entities associated. The conditions are largely the same in both Acts. The differences sit in the drafting.

1. Direct or Indirect Shareholding One enterprise holds 26% or more of the voting power in the other. A third entity may hold at least 26% in both. Either way, the two are associated. Section 162 keeps the same test.

2. Loan Transactions and Financial Dependence One enterprise lends to the other. If the loan is 51% or more of the borrower’s total assets, the two are associated. The test uses book value. Section 162 follows Section 92A here.

3. Guarantees on Borrowings One enterprise guarantees 10% or more of the other’s total borrowings. That alone makes them associated. The 2025 Bill keeps the rule.

4. Control Over Board of Directors One entity appoints more than half of the other’s board, or of its governing members. The two are then associated. Section 162 retains the rule.

5. Dependency on Intellectual Property (IP) Rights The business of one enterprise depends wholly on IP owned by the other. That IP can be a patent, a trademark, a copyright or a licence. The two are then associated. Section 162 keeps the rule in clearer words.

6. Exclusive Business Arrangements One enterprise supplies 90% or more of the raw materials and consumables the other needs. Or one entity sets the prices the other charges for goods and services. Either case makes them associated. The new Bill leaves this unchanged.

7. Common Control by an Individual or Family The same individual, a Hindu Undivided Family (HUF) or their relatives control both enterprises. That makes the two associated. Section 162 is unchanged.

8. Holding of Interest in a Partnership or Association One enterprise holds at least 10% interest in a firm, an association of persons (AOP) or a body of individuals (BOI). It is then associated with the other enterprise. Section 162 makes no major change.

9. Any Other Relationship of Mutual Interest The tax authorities may prescribe other relationships that count as associated enterprises. The new Bill keeps this power in shorter words.

3. Key Differences Between Section 92A and Section 162

1. Modernised Legislative Framework Section 92A sat inside the Income Tax Act, 1961. It pointed to other provisions in Chapter X. Section 162 folds those provisions into the Income Tax Bill, 2025. The drafting now lines up more closely with international tax frameworks.

2. Clearer Treatment of Specified Domestic Transactions (SDTs) The 1961 Act did not link associated enterprises to specified domestic transactions. Section 162 makes that link. Those transactions now fall under transfer pricing rules where those rules apply.

3. Improved Cross-Referencing with Other Sections Section 92A referred to Section 92B on international transactions. It also referred to Section 92C on arm’s length pricing. The 2025 Bill updates those pointers. The result is easier to read and apply.

4. Alignment with OECD and BEPS Standards The new law draws on global practice. India’s definition of associated enterprises stays consistent with OECD guidelines and the BEPS recommendations.

4. Implications for Businesses

The move from Section 92A to Section 162 matters to multinationals, foreign subsidiaries and Indian groups. All of them run related-party transactions. Four things change in practice.

Compliance does not change much. Associated enterprises are still found through the same ownership and control thresholds. Interpretation gets clearer. It is easier to say whether two entities are associated. Specified domestic transactions now fall within the definition. That keeps tax benefits from being misused between Indian entities. Global alignment improves. A group can meet Indian law and international rules together.

5. Final Thoughts

The shift from Section 92A (1961 Act) to Section 162 (2025 Bill) leaves the definition of associated enterprises intact. The framework around the definition is clearer and better ordered. That helps both interpretation and compliance.

For groups in transfer pricing, the updated section brings consistency. It also restates India’s stand against profit shifting.