New Income Tax Bill – 2025- Transfer Pricing Updates
The much-awaited New Income Tax Bill 2025 was presented by the Hon’ble Finance Minister on February 13, 2025, in Parliament. The provisions of this bill will come into effect from April 1, 2026. The Hon’ble Finance Minister, in her 2024 budget speech, had hinted that a comprehensive review of the existing Income Tax Act would be pursued to revamp the provisions with a New Income Tax Act that would be much more concise, simple, and easy to understand.
Key changes in connection with Transferpricing are provided in the VSTN Alert, which is summarised below:
- New Section References – The Transfer Pricing provisions now fall under Sections 161 to 174 (earlier 92 to 92F).
- Multi-Year ALP Determination – Taxpayers now have the option to apply the Arm’s Length Price (ALP) for one year over two consecutive years. This approach is designed to reduce the compliance burden.
- Definition of Associated Enterprises – The new Income Tax Bill has enhanced the scope of the definition of Associated Enterprises under Sections 162(1) and 162(2). These sections are now mutually exclusive expanding the scope of what constitutes an AE.
- Clarity on +/-3% Range – The law now explicitly applies the +/-3% range for ALP determination, even when only a single comparable is available. Also it appears there is no distinction for wholesalers at 1% tolerance limit.
- ALP for multiple prices/margins – References to Mean or percentile are absent. Instead, the ALP determination methodology will be prescribed separately by the authorities.
- Advance Pricing Agreements – Existing agreements under current Income tax act may need re-evaluation due to changes in AE definitions.