There is a familiar transfer pricing ritual in many Indian subsidiaries of multinational groups. The finance team closes the books, the statutory audit gets completed, the tax audit starts, and somewhere around the compliance deadline someone asks: “Do we also need to prepare the TP study?”

The honest answer has always been yes, at least where the prescribed documentation requirements apply. But in practice, many taxpayers treated the transfer pricing study like a fire extinguisher: technically required, but brought out only when there was smoke, litigation, or a specific notice from the tax department.

That approach may soon become very uncomfortable.

With the Income-tax Act, 2025 and the Income-tax Rules, 2026 now in force from 1 April 2026, India’s transfer pricing reporting framework is moving from the old Form 3CEB to the new Form 48. The change is not merely cosmetic. It is not just a renumbering exercise where one old form gets a new name and everyone continues business as usual. Form 48 is more structured, more data-heavy, and more closely connected to the underlying transfer pricing analysis that traditionally sat inside the local file or TP study report. The Income-tax Rules, 2026 were notified by CBDT on 20 March 2026 and came into force on 1 April 2026.

This is why the industry should not wait until FY 2026-27 to change its behaviour. Even though Form 48 will apply to the new tax year framework, the discipline required to file it properly must begin now, while closing and documenting FY 2025-26.

The old world: Form 3CEB was often treated as the “minimum compliance” document

Under the Income-tax Act, 1961, every person entering into an international transaction or specified domestic transaction was required to obtain and furnish an accountant’s report in Form 3CEB under section 92E. The old form required details such as the list of associated enterprises, nature of relationship, broad transaction categories, amounts as per books, amounts computed with reference to arm’s length price, and the method used for determining arm’s length price.

This was never meant to replace the transfer pricing study. The accountant’s report was a certification and disclosure mechanism. The deeper analysis, namely functions performed, assets used, risks assumed, comparables, economic analysis, method selection, assumptions, pricing policies and adjustments, belonged to the transfer pricing documentation framework under section 92D and Rule 10D. The Income Tax Department’s transfer pricing guidance states that every person entering into international transactions or specified domestic transactions must keep prescribed documentation, and Rule 10D covered information such as group profile, business description, transaction terms, FAR analysis, comparability analysis, method selection and actual working for determining arm’s length price.

Yet, in practice, many businesses and even some advisers operated in a grey zone. They would file Form 3CEB, disclose the transaction values, mention a method, and then keep the detailed TP study pending unless there was scrutiny, a TPO reference, or a management requirement. It was a little like submitting the cover page of a thesis and promising that the research exists somewhere in the background.

The law did not endorse that approach. But the old reporting format sometimes allowed it to survive.

The new world: Form 48 brings the TP study closer to the filing itself

Form 48 is the new accountant’s report under section 172 of the Income-tax Act, 2025, replacing Form 3CEB. The official FAQ maps Form 3CEB under the Income-tax Rules, 1962 to Form 48 under the Income-tax Rules, 2026, section 92E to section 172, and Rule 10E to Rule 85. It also confirms that Form 48 is mandatory for every person who has entered into an international transaction and/or specified domestic transaction during the tax year.

The structure itself tells the story. Form 48 has six parts. Part A captures assessee details, Part B auto-populates aggregate transaction amounts, Part C captures international and deemed international transactions, Part D captures specified domestic transactions, Part E captures determination of arm’s length price and adjustment, if any, and Part F captures documentation-related information where the specified conditions are triggered.

That is the real shift. Form 48 does not merely ask, “What did you transact and which method did you use?” It asks for a structured trail: who the associated enterprise is, what the relationship is, which transaction ID is involved, whether transactions are aggregated, which method is applied, how many comparables exist, what margins are produced, whether the result falls within the arm’s length range, whether adjustment is required, and whether prescribed documentation has been maintained.

Part E is the wake-up call: benchmarking is no longer safely hidden in the report

The most important behavioural change sits in Part E of Form 48. This section requires details on determination of arm’s length price. It asks whether transactions have been aggregated with closely linked transactions, requires selection of the most appropriate method, captures the number of comparables, and records relevant results such as arithmetic mean, median, 35th percentile and 65th percentile, depending on the case. It also requires computation of arm’s length price and the amount of adjustment, if any.

For taxpayers using TNMM, Form 48 goes further into the mechanics. It requires the base for net profit margin, such as costs incurred, sales effected, assets employed or another relevant base, the amount of base as per books, the margin realised as per books, comparable margin before and after adjustments, and whether an adjustment is required under section 165 of the Income-tax Act, 2025.

This changes the compliance conversation.

Historically, a captive service provider might say: “We are cost plus 15%, our group policy says so, and we will prepare the study later.” Under the Form 48 environment, that is a weak operating model. If the form itself asks for the computation logic, the number of comparables, margin range, adjustment and ALP outcome, then the benchmarking analysis cannot be an afterthought. It must exist before filing, and in many cases, it should exist before book closure.

Part F quietly ends the “we will prepare documentation if selected” mindset

Part F of Form 48 is equally important. It opens where the aggregate value of international transactions exceeds ₹1 crore or where specified domestic transactions are reported. It asks whether the assessee satisfies conditions for non-maintenance of fresh documents, and if not, whether the assessee has kept and maintained information and documents as prescribed under section 171. The accountant’s certification then states that proper information and documentation as prescribed have been kept by the assessee, so far as appears from examination of records.

This is not a small checkbox. It puts the documentation question squarely inside the reporting workflow.

Under the Income-tax Rules, 2026, Rule 84 requires every person entering into an international transaction or specified domestic transaction to maintain documentation covering ownership structure, group profile, business and industry description, transaction terms, FAR analysis, economic and market analyses, uncontrolled transactions, comparability analysis, method selection, actual working for ALP, assumptions, pricing policies and adjustments.

Rule 84 also preserves the concept of contemporaneous documentation: the information and documents should, as far as possible, be contemporaneous and exist on the specified date. It further requires these documents to be maintained for nine years from the end of the relevant tax year.

So, the new regime is not saying something completely new. It is making the old expectation harder to ignore.

Why FY 2025-26 matters, even though Form 48 applies from FY 2026-27

A common reaction will be: “Form 48 applies from Tax Year 2026-27. Why should we change the FY 2025-26 process?”

Because process maturity cannot be switched on like a portal utility.

The Income Tax Department’s transition FAQ clarifies that income earned during FY 2025-26 will be filed as AY 2026-27 under the old Act and old ITR forms, while income of FY 2026-27 will move into the new Act framework. It also clarifies that the e-filing portal will support compliance under both Acts during the transition.

That means FY 2025-26 is the bridge year. Legally, Form 3CEB continues for FY 2025-26. Operationally, businesses should use this year to prepare for the Form 48 standard. If the FY 2025-26 TP study is prepared late, with weak data gathering, incomplete segmentation, and after-the-event margin corrections, the same weaknesses will carry into FY 2026-27, where the form itself asks for more granular analysis.

The smarter approach is to treat FY 2025-26 as a rehearsal with real consequences.

The real business problem: books, TP policy and Form 48 must now speak the same language

For captive subsidiaries, this is where the issue becomes practical.

A captive IT or ITES unit may operate on a cost-plus model. But what is the cost base? Does it include stock compensation charged by the foreign parent? What about software tools provided by the AE? What about travel costs incurred overseas for Indian employees? What about training costs, secondment costs, outsourcing costs or other expenses borne by the AE but used in India?

Form 48 specifically asks for additional details regarding expenses such as stock compensation or bonus/incentives paid by the assessee or AE to employees, costs or depreciation of assets, software, tools, licences or databases provided by the AE, travel and training expenses incurred by AEs, secondment costs, outsourcing costs, and other AE-incurred expenses used in the assessee’s business operations. It also asks for certain revenue details such as foreign exchange fluctuation income and subsidies, grants, incentives, duty drawbacks, waivers, concessions or reimbursements.

This is operational transfer pricing in plain English. The form is indirectly asking: “Did your books capture the real economics of the transaction, and can you explain what was included or excluded in the ALP computation?”

A distributor faces a similar issue. Group pricing may target a certain return on sales, but local discounts, warranty provisions, marketing reimbursements, slow-moving stock and forex losses can quietly move the Indian entity outside the arm’s length range. If the TP study is prepared only after year-end, the team may discover the problem after the books are already closed.

A contract manufacturer has its own version of pain. Capacity utilisation, idle plant costs, raw material price variance, group-directed production changes and extraordinary costs can all affect margins. If these are not tracked during the year, the year-end TP analysis becomes a forensic exercise: less “transfer pricing study”, more “crime scene reconstruction”, except the only criminal is an unreconciled spreadsheet.

Why this affects Indian holding companies too

This issue is not limited to foreign MNCs with Indian captives. Indian groups with overseas subsidiaries also need to pay attention.

Outbound business models often involve management fees, cost allocations, loans, guarantees, royalties, software access, shared service charges and secondment arrangements. These are all transfer pricing-sensitive. Form 48’s transaction taxonomy includes financing, guarantees, services, intangibles, restructuring and cost contribution or cost allocation arrangements.

For Indian-headquartered groups, this means the parent company’s finance team cannot assume that TP is merely a foreign subsidiary compliance issue. If the Indian entity is receiving or paying intercompany charges, extending guarantees, lending funds, charging management fees or licensing intangibles, India-side reporting and documentation must be aligned.

The penalty angle: not new, but easier to trigger through bad process

The old law already had consequences. The Income Tax Department’s transfer pricing guidance notes that failure to maintain or correctly report documentation could attract penalty under section 271AA equal to 2% of the value of each international transaction or specified domestic transaction, failure to furnish Form 3CEB could attract a ₹1,00,000 penalty under section 271BA, and failure to furnish information or documents under section 92D(3) could attract penalty equal to 2% of the value of the relevant transaction for each failure.

The business risk, however, is wider than penalty. Poor TP documentation can lead to transfer pricing adjustments, interest, prolonged audits, dispute management costs, tax provisioning uncertainty, and uncomfortable board-level questions. The new Form 48 environment increases the chance that weak positions become visible earlier, because the form asks for the mechanics upfront.

What companies should start doing now

The first step is to stop treating the TP study as a post-filing comfort document. For FY 2025-26, companies should prepare the TP documentation in parallel with the Form 3CEB process, not months later. This gives the team an opportunity to identify data gaps, confirm transaction classifications, validate cost bases, test margins, and document true-up positions before the audit file goes cold.

The second step is to create a Form 48 readiness file, even for FY 2025-26. This does not mean filing Form 48 for a year where it is not applicable. It means mapping the current-year data to the future format: AE details, relationship codes, transaction categories, deemed international transactions, aggregation logic, method selection, comparable set, margin range, ALP computation, adjustment logic, additional expense and revenue disclosures, and documentation confirmation.

The third step is to bring operational teams into the TP process. HR must know whether stock compensation and secondment costs matter. Treasury must track loans, guarantees and interest. Procurement must identify AE-provided tools or licences. Business teams must document restructurings and changes in functional profile. Finance must maintain clean segmentation. Tax cannot build a defensible Form 48 filing alone while sitting in a corner with a database subscription and strong coffee.

The larger shift: from compliance reporting to compliance readiness

The move from Form 3CEB to Form 48 signals a deeper policy direction. The tax administration wants structured, comparable, machine-readable and analysis-backed disclosures at the reporting stage. The taxpayer’s position must be more than “we believe this is arm’s length.” It must be capable of being traced from intercompany agreement to books of account, from books to benchmarking, and from benchmarking to the accountant’s certification.

That is a healthy development for serious taxpayers. It rewards discipline. It also exposes shortcuts.

For years, many businesses asked: “Can we prepare the TP study only if there is a notice?” Under the new reporting environment, the better question is: “Can we afford not to prepare it before filing?”

Conclusion: Form 48 is tomorrow’s form, but today’s problem

FY 2025-26 may still close under the old transfer pricing reporting framework. But the habits that will make or break FY 2026-27 compliance are being formed now.

Form 48 does not merely replace Form 3CEB. It changes the psychology of transfer pricing compliance. The form brings the TP study closer to the filing, pushes benchmarking into the disclosure architecture, and makes contemporaneous documentation harder to postpone. For companies that already maintain robust documentation, this is not a threat. It is validation. For those that relied on last-minute reporting and “we will prepare if selected” thinking, this is the warning light on the dashboard.

And as every finance professional knows, warning lights do not disappear because you turn up the music.

The practical takeaway is simple: start using FY 2025-26 to build the Form 48 discipline. Prepare the TP study on time, reconcile it with books, test margins before filing, and make sure the story in the intercompany agreement, ledger, benchmarking analysis and accountant’s report is the same story. In transfer pricing, consistency is not style. It is defence.