Indian secondary adjustments for transfer pricing: what you need to know about the new rules

by Ajit Jain

India’s Central Board of Direct Taxes on 15 June published new rules providing for transfer pricing secondary adjustments. These new rules attribute income to the excess money in the hands of an associated enterprise following a primary transfer pricing adjustment and also require an actual allocation of funds consistent with that adjustment.

The new Indian secondary adjustments rule shall apply to primary adjustments exceeding INR 10 million (USD 150,000) made in respect of assessment year 2017-18 onward.

The rule prescribes the time limit for repatriation of excess money and the rate of interest to be applied for computing the income in case of failure to repatriate the excess money within the prescribed time limit.

Separate rates of interest have been provided for international transactions denominated in Indian currency and in foreign currency. The rates of interest are applicable on an annual basis.

90-day time limit

Under the rules, a time limit of 90 days for repatriation of excess money shall begin only when the primary adjustments attain finality.

Where the taxpayer has made primary adjustment, suo-moto, in the return of income, the period of 90 days shall begin from the date of filing of return.

Where a transfer pricing order is appealed by the taxpayer, the time limit for repatriation shall commence only after the appeal is finalized by the appellate authority and the appeal order has been accepted by the taxpayer.

In case the primary adjustment is made as a consequence of an advance pricing agreement entered into by the taxpayer or as a result of application of safe harbor provisions, the period of 90 days shall begin from the date of filing of return.

Similarly the time limit of 90 days shall apply to the primary adjustment accepted by the taxpayer as a consequence to the mutual agreement process. The period of 90 days shall be reckoned from the due date of filing of return of income.

Interest computation

The computation of interest shall be dependent upon the currency in which the international transaction has taken place. In case of Indian currency, it shall be the one year marginal cost of fund lending rate of State Bank of India as on 1 April of the relevant previous year plus 325 basis points.

In case of foreign currency, the interest rate shall be six month London Interbank Offered Rate (LIBOR) as on 30 September of the relevant previous year plus 300 basis points.

Indian secondary adjustments – some thoughts

It appears that new guidance’s 90-day period to conclude the repatriation is quite fair. However, there is no clarity regarding what would happen if a taxpayer is not able to transfer the money. Will this lead to charging of interest on perpetual basis?

Also, a reverse scenario is to yet to be imagined. When an Indian multinational entity suffers secondary adjustment in a country, will the Indian entity be allowed to remit the money by the transfer pricing officers.

Whether the dividend route would have been a better proposition for Indian secondary adjustments is to be tested in coming times.

Ajit Jain is a Chartered Accountant with LL.M. in International Taxation from Vienna, located at Mumbai specializing in transfer pricing dispute resolution. He can be reached at

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