Secondary Adjustment and Transfer Pricing Documentation Under the Income Tax Act 2025: Sections 170, 171 and 172

A secondary adjustment under section 170 of the Income-tax Act, 2025 follows a transfer pricing correction of Rs 1 crore or more. If the extra money the Indian entity should have earned is not brought back from the foreign associated enterprise within 90 days, the law treats it as a loan from India to that enterprise and charges imputed interest. The assessee can instead pay additional income-tax at 18% on that money. Alongside this, sections 171 and 172 require every person with an international or specified domestic transaction to keep documents and to get an accountant's report (Form 48).

This guide covers when the secondary adjustment applies, how the 90 days and the interest are counted, what the 18% option does, which documents must be kept and for how long, and the dates for the accountant's report. Every figure comes from the Act (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026, with the section or rule number next to it. For the basics of arm's length price and what counts as an international transaction, read transfer pricing and arm's length price under the Income Tax Act 2025 first. Last reviewed against the source text on 10 November 2026.

What is a secondary adjustment under the Income Tax Act 2025?

Start with the primary adjustment. Section 170(9)(c) defines it as fixing the transfer price on the arm's length principle in a way that increases the assessee's total income or reduces its loss. Suppose an Indian company sold goods to its foreign group company at Rs 12 crore when an independent party would have paid Rs 15 crore. The income goes up by Rs 3 crore. That is the primary adjustment.

The books still show a gap. The Indian company's income was corrected on paper, but the Rs 3 crore never reached its bank account. The excess money (section 170(9)(b): the arm's length price fixed in the primary adjustment minus the price actually charged) is sitting with the associated enterprise abroad.

A secondary adjustment (section 170(9)(d)) is an adjustment in the books of the assessee and its associated enterprise so that the actual split of profit matches the arm's length price, removing the imbalance between the cash account and the actual profit. In practice that means the money has to come back, or the law will treat it as an advance.

When must you make a secondary adjustment?

Section 170(1) applies only where the primary adjustment is Rs 1 crore or more, and only in one of five situations:

Source of the primary adjustment	Section 170(1)	Repatriation clock starts from (rule 83(1))
Made by the assessee on its own in the return of income	(a)	Due date of the return under section 263(1)
Made by the Assessing Officer and accepted by the assessee	(b)	Date of the order of the Assessing Officer or appellate authority
Determined by an advance pricing agreement (section 168), for a year, on or before the return due date	(c)	Due date of the return under section 263(1)
Determined by an advance pricing agreement, for a year, after the return due date	(c)	End of the month in which the agreement was entered into
Made under the safe harbour rules (section 167)	(d)	Due date of the return under section 263(1)
Arising from resolution under a mutual agreement procedure (section 159)	(e)	Date of the order giving effect to the resolution under rule 121(10)

The Rs 1 crore test is on the primary adjustment, not on the transaction value. A Rs 40 crore transaction with a Rs 60 lakh adjustment does not trigger section 170.

How does the 90-day repatriation rule work?

Section 170(2) deems the excess money to be an advance made by the assessee to the associated enterprise if two things are true: the primary adjustment increased the income (or reduced the loss), and the excess money was not repatriated to India within the prescribed time. Rule 83(1) fixes that time at ninety days from the date in the table above.

Two practical points from the section:

• The money can come back from any non-resident associated enterprise of the assessee, not only the one that received the excess (section 170(3)).
• Repatriation can be of "the excess money or part thereof", so a partial repatriation reduces the amount treated as an advance.

The dates assume a company or other assessee to which section 172 applies, whose return is due on 30 November (section 263(1)(c), Table Sl. No. 1), and a primary adjustment declared in that return for tax year 2026-27.

How is the interest on the deemed advance calculated?

Section 170(4) leaves the method to the rules. Rule 83(2) sets an imputed per annum interest income on the excess money that is not repatriated in time:

Currency of the international transaction	Interest rate (rule 83(2))
Indian rupee	One-year marginal cost of funds lending rate of the State Bank of India as on 1 April of the relevant tax year, plus 325 basis points
Foreign currency	Reference rate of that currency (as defined in rule 89(3)) as on 30 September of the relevant tax year, plus 300 basis points

Rule 83(3) makes the interest chargeable from the date in column C of the rule 83(1) table, which is the date from which the 90 days are counted, not from the 91st day. For a foreign-currency transaction, rule 83(4) converts the value into rupees at the telegraphic transfer buying rate on the last day of the tax year in which the transaction took place (as defined in rule 207).

What is the 18% additional tax option?

If the money has not been repatriated in time, section 170(5) lets the assessee, at its option, pay additional income-tax at 18% on the excess money (or the part not repatriated). The consequences are spelled out:

• The tax is the final payment on that amount, and no credit for it can be claimed by the assessee or anyone else (section 170(6)).
• No deduction under any other provision of the Act is allowed on the amount on which this tax is paid (section 170(7)).
• Once the tax is paid, the assessee does not have to make the secondary adjustment or compute interest from the date of payment (section 170(8)). Interest for the period before payment is not wiped out by the text of this sub-section.

Worked example 1: secondary adjustment with the 18% option

Assumptions (tax year 2026-27): Alpha Components Pvt Ltd sold goods to its Singapore group company for Rs 12 crore. The Assessing Officer fixed the arm's length price at Rs 15 crore, and the order is dated 15 June 2027. Alpha accepts the order. The transaction is in rupees, and the Singapore company has not returned any of the money.

Step	Working	Result
1. Primary adjustment (section 170(9)(c))	Rs 15,00,00,000 minus Rs 12,00,00,000	Rs 3,00,00,000
2. Is section 170 triggered?	Rs 3 crore is at least Rs 1 crore, and the order was accepted (170(1)(b))	Yes
3. Excess money (section 170(9)(b))	Arm's length price minus actual price	Rs 3,00,00,000
4. Repatriation deadline (rule 83(1), Sl. No. 2)	15 June 2027 plus 90 days	13 September 2027
5. If nothing comes back, option B tax (section 170(5))	Rs 3,00,00,000 x 18%	Rs 54,00,000

Alpha can bring the Rs 3 crore back by 13 September 2027, in which case no deemed advance arises. If it does not, it chooses between the imputed interest in example 2 and paying Rs 54,00,000. This example does not add surcharge or cess, because section 170(5) states only the 18% rate. Check how the payment is actually made with the filing portal and the Rules before relying on the figure.

Worked example 2: imputed interest if the money stays abroad

Same facts as example 1. Alpha does not pay the 18% tax and the Rs 3 crore remains outside India for six months from 15 June 2027. Assumption for illustration only: the State Bank of India one-year marginal cost of funds lending rate on 1 April 2027 is 8.50%. This figure is an assumption, not a published rate; use the actual rate for the year.

Step	Working	Result
1. Rate (rule 83(2)(a))	8.50% plus 3.25% (325 basis points)	11.75% per annum
2. Interest for a full year	Rs 3,00,00,000 x 11.75%	Rs 35,25,000
3. Interest for six months	Rs 35,25,000 x 6/12	Rs 17,62,500

The six-month figure is a simple pro-rata for illustration. The interest is chargeable from 15 June 2027, the date in column C of the rule 83(1) table (rule 83(3)). If the money stays out for several years, the interest keeps running each year, which is when the one-time 18% payment becomes the comparison to make. Which option is better depends on how long the money would stay abroad and on the assessee's own position, so treat the numbers as a way to see the mechanics.

What documents must be kept under section 171?

Section 171(1) requires every person who has entered into an international transaction or a specified domestic transaction, and every constituent entity of an international group, to keep and maintain the prescribed information and documents, for the prescribed period and in the prescribed manner. Rule 84(1) lists the contents for transaction-level documentation. In plain terms, you need to be able to show:

• who owns the assessee and the profile of the group, with each associated enterprise it dealt with (rule 84(1)(a) and (b));
• the business and industry, and the nature, terms, prices and value of each transaction (rule 84(1)(c) and (d));
• functions performed, risks assumed and assets employed by each side (rule 84(1)(e));
• the comparables considered and the analysis of comparability (rule 84(1)(g) and (h));
• the methods considered, the one chosen as most appropriate, why, and the actual workings (rule 84(1)(i) and (j));
• assumptions and price negotiations that affected the price, and any adjustments made to the transfer price and to total income (rule 84(1)(k) and (l)).

Rule 84(5) says these must be supported by authentic documents, such as agreements, correspondence with the associated enterprise, published accounts, price publications and market research reports.

Rule	Requirement
84(2)	Detailed documentation under 84(1) is not required if the total value of international transactions in the tax year, as recorded in the books, does not exceed Rs 1 crore. You must still be able to substantiate that income from them was computed under section 161 (rule 84(3)).
84(6)	Documents should, as far as possible, be contemporaneous and must exist on the "specified date", which section 173(d) defines as one month before the return due date.
84(7)	For a transaction that runs beyond one tax year, fresh documents are needed only if the nature, terms, assumptions or any other pricing factor changes significantly.
84(8)	Keep the documents for nine years from the end of the relevant tax year.
84(4)	A lighter list applies to an eligible specified domestic transaction (rule 96) of an eligible assessee (rule 95).

Section 171(2) allows the Assessing Officer or the Commissioner (Appeals) to call for the documents during any proceeding. You must furnish them within ten days of receiving the notice. On application, the period can be extended by up to thirty more days (section 171(3)), so the outer limit is forty days.

Who files the group-level (master file) information?

A constituent entity of an international group has a second duty under section 171(4) and rule 123. It must keep group-level information, such as the list of group entities, a chart of the ownership structure, the group's business description, intangibles, financing arrangements and the consolidated financial statement, when both of these hold (rule 123(1)):

• consolidated group revenue for the accounting year is more than Rs 500 crore; and
• the aggregate value of international transactions for the accounting year is more than Rs 50 crore, or purchases, sales, transfers, leases or use of intangible property total more than Rs 10 crore.

The information goes to the Joint Director (rule 124(1)) in Form 56 on or before the return due date under section 263(1)(c) (rule 123(2)). Part A of Form 56 must be furnished even if the thresholds are not met (rule 123(3)). Where several Indian entities of the same group are covered, one designated entity can furnish Form 56 if the group has designated it and Form 57 is given to the Joint Director at least thirty days before the Form 56 due date (rule 123(4)). The group-level records are also kept for nine years (rule 123(5)).

What is the accountant's report under section 172 and when is it due?

Section 172 says every person who entered into an international transaction or specified domestic transaction during a tax year must obtain a report from an accountant and furnish it by the specified date in the prescribed form, signed and verified as prescribed. The accountant is a chartered accountant meeting the conditions in section 515(3)(b).

Item	Rule
Form	Form 48, verified as indicated in the form (rule 85(1))
Due date	At least one month before the return due date under section 263(1)(c) (rule 85(2))
Return due date where section 172 applies	30 November of the following year (section 263(1)(c), Table Sl. No. 1)
Result for tax year 2026-27	Form 48 on or before 30 October 2027

The reports and documents apply even when you use a safe harbour. For a specified domestic transaction, rule 97(4) says sections 171 and 172 apply even if the assessee exercises the safe harbour option. Rule 100(4) says the same for an eligible business under the income-attribution safe harbour that also has an international or specified domestic transaction.

Is there any tax relief for past income brought in by a secondary adjustment?

Rule 118 gives a relief to a company in the tax payable under section 206(1). It applies when past income, being income of earlier years included in the book profit of the current year because of an advance pricing agreement or a secondary adjustment under section 170, would otherwise be taxed again. The relief is worked out by the formula (A-B) minus (C-D) in rule 118(1), cannot be below zero (rule 118(2)), and is claimed in Form 53 uploaded as a signed printout and verified by the person authorised to verify the return (rule 118(5)). This is a narrow point for companies computing tax under section 206(1), so read rule 118 in full before using it.

Real-life example 1: Ravi's software company

Ravi runs a Pune software company that provides services to its US parent. His accountant concludes that the fee should have been Rs 2.4 crore higher, and Ravi declares that amount in his return as a self-assessed primary adjustment. Because it is above Rs 1 crore and made in the return, section 170(1)(a) applies. The 90 days run from the return due date. His parent wires the Rs 2.4 crore to India within that window, so no deemed advance arises and no interest is imputed. Ravi files Form 48 a month before the return due date.

Real-life example 2: Meena's group loan

Meena is the finance head of an Indian subsidiary that sold goods to a group company in Dubai at a price below the arm's length price. After a mutual agreement procedure between the two countries, a Rs 1.5 crore adjustment is agreed, which falls under section 170(1)(e). The 90 days start from the date of the order giving effect to the resolution (rule 83(1), Sl. No. 6). The Dubai company is short of cash, but a sister company in Singapore pays the Rs 1.5 crore into India within 90 days. Section 170(3) allows repatriation from any non-resident associated enterprise, so this counts.

Real-life example 3: a small exporter below the Rs 1 crore line

Farhan exports to a related buyer in Dubai. His international transactions total Rs 80 lakh for the year. Rule 84(2) means he need not keep the full rule 84(1) file, but he must still be able to show with the material he has that the income was computed under section 161 (rule 84(3)). Section 172 still applies to him as a person with an international transaction. He should confirm with his accountant whether and how the report applies, since the Rs 1 crore carve-out in rule 84 is expressly about documentation, not about the accountant's report.

Common mistakes

• Counting the 90 days from the wrong date. The start date depends on how the primary adjustment arose (rule 83(1)): return due date, order date, end of the month of the agreement, or the date of the order under rule 121(10).
• Assuming interest starts only after day 90. Rule 83(3) charges the interest from the column C date.
• Treating the 18% as a deductible or creditable payment. Section 170(6) and (7) make it a final payment with no credit and no deduction.
• Reading the Rs 1 crore trigger as a transaction value test. It is on the primary adjustment.
• Skipping Form 48 after choosing a safe harbour. Section 172 still applies, and rule 97(4) and rule 100(4) say so for the cases they cover.
• Preparing documents after the specified date. Rule 84(6) expects them to exist one month before the return due date, not to be created when a notice arrives. Section 171(2) gives only ten days to respond.

Quick reference: limits and dates

Item	Limit or date	Source
Primary adjustment that triggers a secondary adjustment	Rs 1 crore or more	Section 170(1)
Time to repatriate excess money	90 days from the date in the rule 83(1) table	Rule 83(1)
Imputed interest, rupee transaction	SBI one-year MCLR on 1 April plus 325 bps	Rule 83(2)(a)
Imputed interest, foreign currency	Reference rate on 30 September plus 300 bps	Rule 83(2)(b)
Additional tax option	18% on the excess money, final tax	Section 170(5)-(7)
Documentation exemption	International transactions up to Rs 1 crore in the year	Rule 84(2)
Retention period	9 years from the end of the tax year	Rule 84(8)
Reply to a notice for documents	10 days, extendable by up to 30 days	Section 171(2), (3)
Accountant's report	Form 48, at least one month before the return due date	Section 172; rule 85
Group-level information	Form 56 by the return due date; Rs 500 crore group revenue and Rs 50 crore / Rs 10 crore transaction thresholds	Section 171(4); rule 123

Where this is in the Act

• Section 170: secondary adjustment, deemed advance, interest, 18% additional tax, definitions
• Section 171: maintenance, keeping and furnishing of information and documents; section 173(d) for the "specified date"
• Section 172: accountant's report; section 515(3)(b) for who is an accountant
• Sections 163 and 164: international transaction and specified domestic transaction
• Section 263(1)(c): return due dates used to count the deadlines
• Rule 83: repatriation period and imputed interest
• Rule 84: documents to be kept, thresholds and retention
• Rule 85: Form 48
• Rule 97(4) and rule 100(4): sections 171 and 172 apply despite safe harbour
• Rule 118: relief under section 206(1)(i), Form 53
• Rule 123: group-level information, Form 56 and Form 57

For a CA firm, the hard part is the calendar: which clients have related-party deals, who has crossed the Rs 1 crore line, which repatriation windows are running and when Form 48 and the documents are due. Finexo's practice management software tracks these deadlines across your client book and reminds you and your clients before they pass. It does not prepare the documentation or file the forms for you.

This article is general information on the law as amended by the Finance Act, 2026. It is not tax advice, and penalties for non-compliance are not covered here.