February 23, 2026
India’s transfer pricing regime has long been one of the most closely scrutinised compliance areas for multinational enterprises (MNEs). With India positioning itself as a global manufacturing and services hub, cross-border transactions between related parties have increased sharply. Against this backdrop, the introduction of the Income-tax Act, 2025 marks a structural overhaul of the country’s tax law, including the provisions governing references to the Transfer Pricing Officer (TPO).
At first glance, the migration of Section 92CA of the Income-tax Act, 1961 to Section 166 of the new Act may appear to be merely a renumbering exercise. However, when examined in the wider context of faceless proceedings, centralised scheme-making powers, and administrative restructuring, the shift reflects a deeper attempt to modernise India’s tax enforcement architecture.
This article explains how the transfer pricing reference framework is evolving under the new law, what has changed, and why it matters strategically for global businesses operating in or through India.
Understanding the Role of the Transfer Pricing Officer
Transfer pricing regulations exist to ensure that transactions between related entities—such as a parent company and its subsidiary—are conducted at an arm’s length price (ALP), meaning the same price that would apply between independent parties.
In India, when an Assessing Officer (AO) believes that an international transaction or specified domestic transaction requires specialised review, the case is referred to the Transfer Pricing Officer. The TPO examines the pricing methodology, comparables, and supporting documentation, and determines whether the taxpayer’s pricing meets arm’s length standards.
This process has historically been governed by Section 92CA of the Income-tax Act, 1961. Under the new Income-tax Act, 2025, this function is now embedded in Section 166, preserving the underlying structure but aligning it with the modernised legal framework. The correspondence between the two provisions is explicitly mapped, confirming continuity in core procedures.
From a business standpoint, this means that transfer pricing audits will continue to play a central role in India’s tax enforcement landscape, even as the legislative structure evolves.
Structural Continuity: Section 92CA and Section 166 Compared
Most sub-sections of Section 92CA have been carried forward into Section 166 with corresponding provisions. For example:
Section 92CA(1), which allows the Assessing Officer to refer transfer pricing matters to the TPO, corresponds to Section 166(1).
Section 92CA(3), dealing with the TPO’s determination of arm’s length price, corresponds to Section 166(6).
Section 92CA(4), which makes the TPO’s determination binding on the Assessing Officer, corresponds to Section 166(11).
This one-to-one mapping demonstrates that the legislative intent is not to dilute transfer pricing enforcement but to consolidate and reorganise it within the new tax framework.
For multinational businesses, this means the fundamental compliance obligations—maintaining contemporaneous documentation, applying OECD-aligned pricing methods, and defending comparables—remain unchanged.
The Bigger Shift: Introduction of Section 532 and Centralised Scheme-Making Power
While Section 166 maintains continuity, the real transformation lies in the introduction of Section 532 of the Income-tax Act, 2025.
Under the previous regime, the Central Government issued separate faceless schemes for different provisions, such as faceless assessment, appeals, penalty proceedings, and transfer pricing determinations. Each of these schemes had specific legal backing under individual sections.
Under the new law, Section 532 creates a unified legal basis empowering the government to frame schemes across the entire Act.
As noted in the comparative analysis, Section 532 enables schemes to achieve two primary objectives:
Eliminating direct interface between taxpayers and tax officers
Optimising utilisation of administrative resources through specialisation and economies of scale
This centralisation significantly alters how transfer pricing administration will function in practice.
What Happened to “Team-Based Functioning” and “Dynamic Jurisdiction”?
Interestingly, under the 1961 Act, faceless schemes were designed to achieve four objectives:
Eliminating physical interface
Optimising resource utilisation
Enabling team-based functioning
Enabling dynamic jurisdiction
However, under Section 532 of the new Act, only the first two objectives are explicitly retained.
The comparative study highlights that team-based functioning and dynamic jurisdiction are not included in Section 532’s core objectives.
This omission is subtle but important.
It suggests a shift away from the earlier emphasis on multi-layered, decentralised decision-making towards potentially more streamlined, centralised tax administration.
For businesses, this could have both positive and negative implications:
On the positive side, decisions may become more standardised and predictable.
On the downside, there may be less flexibility for contextual or case-specific consideration.
Transition Rules: What Happens to Existing Faceless Transfer Pricing Schemes?
The Income-tax Act, 2025 contains clear transition provisions to ensure continuity.
Section 536 provides that schemes notified under the old Act will continue to operate under the corresponding provisions of the new Act or under Section 532.
This is a crucial reassurance for taxpayers currently undergoing transfer pricing audits.
It means:
Existing faceless transfer pricing procedures remain valid
Ongoing proceedings will continue uninterrupted
There is no requirement to restart or re-file transfer pricing compliance
From a legal certainty perspective, this is a positive development.
Practical Impact on Multinational Enterprises
To understand the real-world implications, consider a typical multinational structure.
Imagine a US-based technology company with an Indian captive service centre providing software development services.
Each year, the Indian subsidiary earns a cost-plus margin and files transfer pricing documentation to support its pricing.
If the Assessing Officer doubts the margin or comparables, the matter is referred to the TPO under Section 166.
Under the new Act:
The procedure itself remains similar.
However, the administration of the case may occur under schemes framed under Section 532.
This means:
Proceedings may be fully faceless
Officers may be located anywhere in India
Communication will occur electronically
This aligns with global trends towards digital tax administration.
Alignment with Global Transfer Pricing Standards
India’s transfer pricing regime is already broadly aligned with OECD guidelines, including:
Arm’s length principle
Comparable uncontrolled price method
Transactional net margin method
Documentation requirements
The new Act does not fundamentally change these principles.
Instead, it focuses on administrative efficiency.
This is consistent with India’s broader efforts to:
Improve ease of doing business
Increase transparency
Reduce litigation
From an OECD perspective, these administrative reforms enhance tax certainty, which is a key objective under the BEPS framework.
Litigation Strategy and Risk Management Under the New Framework
Transfer pricing litigation has historically been a major area of tax disputes in India.
Many disputes relate to:
Selection of comparables
Profit margins
Functional characterisation
The shift to faceless and centralised administration may influence litigation dynamics.
For example:
Taxpayers may need to rely more heavily on written submissions rather than oral arguments.
Documentation quality will become even more critical.
This reinforces the importance of:
Robust transfer pricing policies
Detailed functional analysis
Consistent global pricing strategy
Why This Reform Matters Strategically
The shift from Section 92CA to Section 166 is not merely technical.
It reflects India’s broader tax policy objectives:
Digitisation of tax administration
Centralisation of tax authority powers
Reduction of corruption risk
Improvement in administrative efficiency
These reforms are especially important as India seeks to attract global investment. Transfer pricing certainty is a key factor in investment decisions. Multinationals prefer jurisdictions where tax outcomes are predictable. The new framework is designed to deliver that predictability.
Expert Perspective: What Businesses Should Do Now
Businesses operating in India should take several proactive steps:
First, review transfer pricing documentation to ensure it is robust and defensible.
Second, prepare for fully faceless proceedings.
Third, ensure alignment between global transfer pricing policy and Indian implementation.
Fourth, anticipate increased data-driven scrutiny.
Companies should also recognise that the new Act reinforces, rather than relaxes, transfer pricing enforcement.
The compliance burden remains significant.
The Broader Evolution of India’s Tax System
The Income-tax Act, 2025 represents one of the most significant tax reforms in India in decades. Rather than reinventing transfer pricing rules, it modernises their administration. This approach balances continuity with reform. Businesses can continue operating within familiar legal principles while adapting to new administrative processes. This is a pragmatic approach.
Conclusion: A New Administrative Era, Not a New Transfer Pricing Philosophy
The transition from Section 92CA of the Income-tax Act, 1961 to Section 166 of the Income-tax Act, 2025 marks an important milestone in India’s tax evolution. The underlying transfer pricing principles remain intact. The arm’s length standard continues to guide multinational transactions. What has changed is how the law is administered.
The introduction of Section 532 signals a move towards centralised, digital, and faceless tax enforcement. For multinational businesses, this means one thing above all else: transfer pricing compliance is no longer just about getting the economics right. It is about ensuring that your documentation, processes, and strategy are aligned with a rapidly modernising tax administration.
In the coming years, the companies that adapt fastest to this new environment will not only minimise tax risk—but also gain a competitive advantage in one of the world’s most important growth markets.
