Section 92BA of the Income Tax Act

The Income Tax Act, 1961 is a huge law that talks about how income is taxed in India. One important part of this law is about “Specified Domestic Transactions” (SDT), and it comes under Section 92BA. We will focus only on what Section 92BA means, why it was made, and why it matters!

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What is Section 92BA?

Section 92BA was added to the Income Tax Act by the Finance Act, 2012.

It mainly talks about certain types of transactions done within India (domestic transactions) that need to follow special rules called “transfer pricing rules.”

Before this, transfer pricing rules were applied only on international transactions (i.e., transactions between an Indian company and a foreign company). But later, the government felt that even big transactions between companies within India should be properly checked. That’s why Section 92BA was introduced.

Simply put:

Section 92BA deals with large value transactions between related Indian companies and ensures that they are done at fair prices.

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Why was Section 92BA Introduced?

The main reasons for introducing Section 92BA were:

• To stop tax evasion: Sometimes, companies could show less income or more expenses by manipulating transactions with related parties.
• To ensure fairness: All companies should pay the correct amount of tax.
• To apply transfer pricing rules: These rules make sure transactions are made at “arm’s length price” (fair market price).

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What is a Specified Domestic Transaction (SDT)?

Under Section 92BA, some transactions between related Indian parties are called Specified Domestic Transactions.

Here are examples of what SDT includes:

• Sale or purchase of goods or services between two related companies.
• Transactions between different units of the same company, especially if one unit is enjoying a tax benefit.
• Transactions that involve payments to related parties where deductions are claimed.

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List of Transactions Covered Under Section 92BA

Here is a simple table to show which transactions are covered under Section 92BA:

Type of Transaction	Example
Sale, purchase or transfer of goods or services	Selling goods from one related company to another
Transfer of business between units of the same company	Moving assets from one business unit to another unit
Any transaction with related parties where deductions are claimed	Payment of royalty, interest, salary, etc., to a related person
Business transactions referred in Section 80A	Transactions involving profit-linked deduction units
Any other transaction as notified	Any transaction that the government may later notify under this law

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What is the Threshold Limit for Section 92BA?

When Section 92BA was introduced, the rules said:

• If the aggregate value of all specified domestic transactions exceeds ₹5 crore in a financial year, then transfer pricing rules will apply.

Important Update:
Later, the government increased this limit to ₹20 crore (from the financial year 2015-16 onwards).

This means:

• If the total value of your specified domestic transactions is more than ₹20 crore, you must maintain transfer pricing documentation and file Form 3CEB (a special report by a Chartered Accountant).

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What is “Arm’s Length Price”?

You will hear the word “arm’s length price” a lot when studying Section 92BA.

In simple words:

Arm’s Length Price is the price that two unrelated parties would agree on in an open market.

When related parties do business, they might charge higher or lower prices to save tax. The law says they must use the arm’s length price to keep things fair.

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Importance of Section 92BA

Here are some key points that show why Section 92BA is important:

• Ensures fairness between companies.
• Helps the government collect correct taxes.
• Prevents companies from showing fake expenses or lower profits.
• Increases transparency in big transactions.
• Protects the interests of small taxpayers by avoiding manipulation by big companies.

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Impact of Deletion of Certain Parts of Section 92BA

In 2017, some parts of Section 92BA were removed. For example:

• Payments to related persons (covered under Section 40A(2)(b)) were removed from Section 92BA.

This was done to reduce compliance burden on businesses.

Today, only limited types of specified domestic transactions are covered under Section 92BA.

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Key Takeaways

Here’s a quick summary in points:

• Section 92BA deals with specified domestic transactions between related Indian entities.
• It applies when total transactions exceed ₹20 crore.
• Companies must maintain records and get a transfer pricing report (Form 3CEB).
• The goal is to ensure fair taxation and prevent manipulation of profits.
• Arm’s Length Price is an important concept under this section.
• Some parts of Section 92BA were deleted in 2017 to make compliance easier.

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Conclusion

Section 92BA of the Income Tax Act is all about making sure that big business transactions within India happen at fair market prices. It prevents companies from shifting profits to related parties to save taxes.

If you are a business owner and your company does large transactions with related companies or units, you must understand Section 92BA. Keeping proper records and following transfer pricing rules will save you from penalties and audits.

Always consult a tax expert or a Chartered Accountant to stay compliant and avoid trouble with tax authorities!

Also Read:

• Income Tax Act eBook
• What is Income Tax Act?
• Income Tax Act 1961 – Explained
• Understanding Tax Invoices

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