Section 92D of Income Tax
Section 92D of Income Tax
Section 92D of the Income Tax Act mandates that a person who is involved in an international transaction or specified domestic transaction should regularly maintain the documents prescribed under rule 10D. The documents must be held for a period of 8 years from the relevant assessment year. In this article, provide a brief overview of Section 92D of the Income Tax Act.
Section 92D of Income Tax Act
The text of the section is reproduced below for reference:
92D. (1) Every person who has entered into an international transaction or specified domestic transaction shall keep and maintain such information and document in respect thereof, as may be prescribed : Provided that the person, being a constituent entity of an international group, shall also keep and maintain such information and document in respect of an international group as may be prescribed. Explanation.—For the purposes of this section,— (A) "constituent entity" shall have the meaning assigned to it in clause (d) of sub-section (9) of section 286; (B) "international group" shall have the meaning assigned to it in clause (g) of sub-section (9) of section 286. (2) Without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section. (3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction or specified domestic transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard : Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days. (4) Without prejudice to the provisions of sub-section (3), the person referred to in the proviso to sub-section (1) shall furnish the information and document referred to in the said proviso to the authority prescribed under sub-section (1) of section 286, in such manner, on or before the date, as may be prescribed.
An international transaction is a transaction between two or more associated enterprises, wherein either or both of them are non-residents. The transaction shall be pursued with the establishment of a mutual agreement or arrangement between the associated parties. The Income Tax Department clearly states that a transaction entered into by an enterprise with a person other than an associated enterprise shall be deemed to be a transaction between two associated enterprises.
Specified Domestic Transaction
Specified domestic transactions, as the name suggests, is not inclusive of international transactions. Transactions are classified as ‘specified domestic transactions’ if the aggregate of such transactions pursued by the assessee in the previous year exceeds a sum of five crore rupees.
Information to be Maintained
The following information should be maintained by the concerned person:
- A description of the ownership structure of the taxpayer’s enterprise with particulars of shares or other ownership interest held therein by other enterprises.
- A profile of the multinational group in which the taxpayer’s enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises included in the group with whom the specified transactions have been pursued.
- A description of the business of the taxpayer along with the area of operation, and of the business enterprise transacted with.
- The nature and terms of the international transaction pursued with each associated enterprise, details of property transferred or services provided as well as the quantum and value of each of the transactions or class of such transaction.
- A description of the operational risks assumed and assets utilized or to be utilized by the taxpayer.
- A record of uncontrolled transactions which is considered for analyzing their comparability with the specified transactions pursued.
- A record of the analysis conducted to assess the comparability of uncontrolled transactions with third parties.
- A description of the methods considered for determining the arm’s length price in relation to each specified transaction.
- A record of the workings conducted for determining the arm’s length price in relation to each international transaction.
- Any assumptions, policies and price negotiations which have significantly affected the determination of arm’s length price.
- Details of any adjustments made to transfer prices to align them with arm’s length prices determined under these rules and the resulting adjustments applied to the total income for tax purposes.
- Any other information, data or document which may be relevant for determining the arm’s length price.
Taxpayers should note that the above rules are only applicable to international transactions if the aggregate value recorded in the books of accounts exceeds a sum of 1 crore rupees and if the assessee proves that the income arising from international transactions has been computed as per the provisions of Section 92.
Maintenance of Documents
As per the Income-tax Act, the following documents should be maintained along with the above-mentioned information are as follows:
- Official publications, reports, studies and databases from the Government of the country of residence of the associated enterprise, or of any other country.
- Reports of market research studies carried out and technical publications brought out by reputed institutions.
- Price publications.
- Published accounts and financial statements pertaining to the business affairs of the associated enterprises.
- Agreements and contracts held with associated enterprises or unrelated enterprises in respect of transactions similar to the international transactions.
- Letters and other correspondence comprising of any terms negotiated between the assessee and the associated enterprise.
- Documents issued in connection with transactions under the pursued accounting practice.
Furnishing of Documents
The documents and information maintained by the assessee may be demanded by the Assessing Officer, in which case it must be produced within 30 days or the additional period allowed by the authority. To avail an extension, the concerned person must file an application for the same to the Assessing Officer.
Consequences of Non-Maintenance
If the assessee is non-compliant with any of the following regulations, the taxpayer will be penalized with a sum which is equal to 2% of the value of each international transaction or specified domestic transaction. To avoid such scenarios, taxpayers should follow the guidelines mentioned below:
- Keep and maintain information and documents in respect of an international transaction or specified domestic transaction.
- Report the international transaction or specified domestic transaction as per the requirement.
- Submitting false information or document in respect of an international transaction or specified domestic transaction should be avoided.
On the other hand, if an assessee who is a constituent entity of international group fails to furnish information and documents in respect of an international group, the taxpayer will be imposed with a penalty which amounts to Rs 5,00,000.