Section 165 of the Income Tax Bill 2025 Compared with Section 92C

Arm’s length price (ALP) is the core test in India’s transfer pricing rules. It keeps dealings between associated enterprises (AEs) at fair value, so profit cannot be shifted. Section 92C of the Income Tax Act, 1961 and Section 165 of the Income Tax Bill, 2025 both set out this test.

Both sections do the same job. The 2025 Bill makes the structure clearer. It largely keeps the methods and the compliance framework of the old law. This note compares the two sections in detail.

1. What Sections 92C and 165 Both Govern

Both Section 92C (1961 Act) and Section 165 (2025 Bill) lay down how to fix arm’s length price (ALP). They apply to international transactions and to specified domestic transactions between AEs.

The aim is fair pricing. A related-party transaction must be priced as it would be between two independent parties in the open market. That is how the law holds tax evasion in check.

2. Key Provisions and Comparisons

Methods for Determining Arm’s Length Price (ALP)

Both sections list six ways to work out ALP. The set is the same in Section 92C and in Section 165:

✅ Comparable Uncontrolled Price (CUP) method – sets the price by comparing it with a similar uncontrolled transaction. ✅ Resale Price Method (RPM) – sets the price from resale margins on uncontrolled sales. ✅ Cost Plus Method (CPM) – adds a fair markup to the supplier’s costs. ✅ Profit Split Method (PSM) – splits total profit between AEs by what each one contributes. ✅ Transactional Net Margin Method (TNMM) – compares net margins on controlled and uncontrolled transactions. ✅ Other Prescribed Methods – any other method notified by the Central Board of Direct Taxes (CBDT).

So the way a firm picks the most apt method is the same in the old text and the new.

Selection and Application of ALP Method

• Section 92C (1961 Act): the most apt method must be applied to the facts, that is the nature and class of the transaction, the AEs, and other relevant factors.

• Section 165 (2025 Bill): the same test, in clearer words and with tighter cross-references.

Tolerable Range for ALP Variations

• Section 92C allowed a variation of up to 3% from the computed ALP.

• Section 165 keeps this 3% band, unless the Central Government notifies otherwise.

The band helps: a small swing in price does not become a dispute.

Role of the Assessing Officer (AO) in ALP Determination

Both sections let the Assessing Officer (AO) step in and fix ALP in three cases: ✅ the price used does not follow a prescribed method. ✅ the data used is wrong or unreliable. ✅ the taxpayer does not file the records, such as the transfer pricing report.

Before any adjustment, the AO must issue a notice and let the taxpayer explain the price.

Consequences of ALP Adjustments

• Both sections say that if the AO reworks ALP, taxable income may go up.

• No extra deduction under Chapter VIII or Section 144 is allowed on that higher income.

• Where the AE has already deducted tax (TDS) on the adjusted sum, the payee is spared a second tax.

3. Key Differences Between Section 92C and Section 165

1. Structural Reorganization for Clarity

• Section 92C sat in Chapter X of the Income Tax Act, 1961, a chapter that carried many transfer pricing rules.

• Section 165 sits in a new, tidy framework in the 2025 Bill, which makes it easier to read and to cross-refer.

2. Improved Definition of ALP Selection Criteria

• Section 92C named several factors but did not say clearly how to choose the most apt method.

• Section 165 says it in terms: the choice must rest on the nature of the transaction, the AEs, and the functions performed.

3. Explicit Protection Against Double Taxation

• Section 165 says in terms that where one AE’s income is adjusted, the other AE’s income will not be worked out again. That stops a second charge on the same profit.

• Section 92C implied this. Section 165 states it outright.

4. Cross-Referencing with New Compliance Sections

• Section 92C pointed to Sections 92D and 92E for records and reporting.

• Section 165 points to the new sections, such as Section 168 and Section 171, so it lines up with the revised code.

4. Implications for Businesses

For multinationals (MNCs), foreign subsidiaries and Indian firms with related-party transactions, the move from Section 92C to Section 165 means this:

✅ Compliance does not change much: the same ALP methods and rules apply. ✅ The rules on choosing a method are clearer, so there is less doubt about the most apt one. ✅ The 3% band stays, so small deviations are less likely to become disputes. ✅ The guard against double taxation is stronger. ✅ The law is easier to read, thanks to the new structure and cross-references.

5. Final Thoughts

The move from Section 92C (1961 Act) to Section 165 (2025 Bill) does not change much in substance. It tidies the structure, so the text is easier to read and easier to comply with.

For a firm with international or specified domestic transactions, the ALP rules stay as they are. Transfer pricing rules, in other words, remain stable.