What Is a Specified Domestic Transaction (SDT) Under Section 92BA?

The Maharashtra manufacturing unit transferred Rs 45 crore of raw material to the Karnataka SEZ eligible unit during FY 2025-26 at cost plus five per cent. The SEZ unit provided Rs 8 crore of contract manufacturing services back the other way. The tax auditor is asking whether Form 3CEB has to be filed by 31 October 2026, whether the Rule 10D documentation set is in place, and what the Section 92CA reference exposure looks like if the arm’s length pricing on the inter-unit transfer is displaced by the Transfer Pricing Officer.

You know Section 92BA is somewhere in the picture. You also know the definition changed materially in 2017. The question is whether the transaction actually attracts the SDT regime, and if it does, what the compliance stack looks like.

The quick answer

Section 92BA defines a specified domestic transaction as any transaction (not being an international transaction) that falls inside one of five surviving clauses — Section 80A transactions, Section 80-IA(8) inter-unit transfers between eligible and non-eligible units, Section 80-IA(10) close-connection extraordinary-profit arrangements, any Chapter VI-A deduction or Section 10AA SEZ transaction to which the sub-section (8) or (10) machinery applies, and any other prescribed residual. The aggregate value of such transactions in the previous year must exceed Rs 20 crore for the SDT regime to trigger.

The original clause (i) — a plain Section 40A(2)(b) related-party transaction — was OMITTED by the Finance Act 2017 with effect from AY 2017-18. A related-party transaction in isolation, however large, no longer attracts SDT. It attracts Section 40A(2) reasonableness scrutiny, but not the arm’s length pricing regime under Section 92C read with Section 92BA.

Once triggered, three documentation layers apply — Rule 10D contemporaneous documentation (the TP study), Rule 10DA Master File in Form 3CEAA for groups above Rs 500 crore consolidated revenue, and Rule 10DB Country-by-Country Report in Form 3CEAD for groups above Rs 6,400 crore. Form 3CEB is filed with the ITR by 31 October of the assessment year. Section 271BA (Rs 1 lakh), Section 271AA (two per cent of each SDT) and Section 271G (further two per cent during scrutiny) stack independently.

What changed in 2017 — and why the misconception persists

Section 92BA as originally enacted (Finance Act 2012, effective AY 2013-14) had six clauses. Clause (i) covered any expenditure in respect of which payment had been made or was to be made to a person referred to in Section 40A(2)(b) — a plain related-party transaction. That single clause captured the vast majority of what corporates understood as domestic transfer pricing.

The Finance Act 2017 OMITTED clause (i) with effect from AY 2017-18. The stated legislative intent was that the compliance cost of running full transfer pricing documentation on every large related-party expenditure exceeded the revenue protection benefit — Section 40A(2) reasonableness scrutiny was considered adequate for pure related-party abuse cases, and the SDT regime was refocused on deduction-abuse arrangements (where a related-party transaction was being used to shift profits into an eligible unit availing a Chapter VI-A deduction or Section 10AA SEZ deduction).

Post the omission, a related-party transaction is only SDT if it also independently falls inside one of the five surviving clauses (ii) through (vi). A Rs 100 crore purchase from a group subsidiary running no Chapter VI-A or Section 10AA deduction is not SDT. The same purchase, if made from a group subsidiary operating a Section 10AA SEZ unit and the counterparty is availing the SEZ deduction, is SDT under clause (v). The distinction turns entirely on the tax benefit at the other end of the transaction.

Clause (ii) — Section 80A transactions between eligible and other businesses

Section 80A prohibits a taxpayer from claiming a deduction under Chapter VI-A in excess of the gross total income before those deductions. The SDT trigger under clause (ii) is specifically Section 80A(6), which requires that where goods or services are held for the purposes of an undertaking availing a Chapter VI-A deduction and are transferred to any other business of the assessee (or vice versa) at a consideration not corresponding to market value, the profits of the eligible business are computed as if the transfer happened at market value.

This is the sister trigger of Section 80-IA(8) but on the broader Chapter VI-A footing rather than the narrower infrastructure-undertaking footing. A Section 80JJAA employment-cost deduction claimant transferring goods to a group subsidiary, or a Section 80P cooperative society transferring produce to a non-eligible processing unit, both fall under clause (ii) if the consideration is off-market.

Clause (iii) — Section 80-IA(8) inter-unit transfers

The most common SDT trigger for infrastructure and power-generation companies. Section 80-IA(8) applies where any goods or services held for the purposes of an eligible business are transferred to any other business of the same assessee (or vice versa), and the recorded consideration does not correspond to the market value. The profits of the eligible business are computed as if the transfer had happened at market value.

The transfer pricing framework applies to IT services captives on the international transaction side and to Section 80-IA(8) inter-unit transfers on the SDT side — the arm’s length principle is the same, and the transfer pricing method selection (Comparable Uncontrolled Price, Resale Price, Cost Plus, Profit Split, Transactional Net Margin, or Other Method under Rule 10AB) runs identically for both.

Clause (iv) — Section 80-IA(10) close-connection extraordinary profits

Where the AO finds that the arrangement between the assessee’s eligible business and a related person is producing more than the ordinary profits that might be expected to arise in the eligible business, Section 80-IA(10) empowers the AO to compute the eligible business’s profits on a reasonable basis. Clause (iv) of Section 92BA channels the close-connection extraordinary-profit test into the SDT regime — the reasonable basis becomes the arm’s length price under Section 92C.

The close-connection test is broader than Section 40A(2)(b) related-party — it does not require formal relatedness, only a course of business so arranged as to produce extraordinary profits. A captive contract manufacturer channelling all its output to a group entity at margins that materially exceed comparable third-party CDMO margins can be pulled into clause (iv) even where the two entities are separately owned but commercially linked, as the CDMO contract manufacturing margin analysis walks through in detail.

Clause (v) — Chapter VI-A / Section 10AA and the SEZ leg

Clause (v) is the omnibus that captures Section 10AA SEZ transactions and any Chapter VI-A deduction (80-IA, 80-IB, 80-IC, 80-ID, 80-IE, 80JJAA, 80P and others) to which the Section 80-IA(8) or 80-IA(10) machinery applies. This is the clause that most commonly catches the SEZ inter-unit transfer example — a domestic tariff area (DTA) unit selling raw material to a SEZ unit availing the Section 10AA deduction.

The Section 10AA deduction structure is a fifteen-year taper — 100 per cent of profits from the eligible business for the first five years, 50 per cent for years six to ten, and 50 per cent of profits credited to a Special Economic Zone Re-investment Reserve Account for years eleven to fifteen. Because the deduction magnitude is large in the first ten years, the incentive to inflate the SEZ unit’s profits via off-market inter-unit transfers is highest during that window — which is why clause (v) is the highest-scrutiny leg of the SDT regime.

The SEZ net foreign exchange reconciliation across the five-year block walks through the parallel NFE compliance obligation on the SEZ unit’s export earnings — the two regimes (SDT and NFE) sit on the same SEZ transaction and both require the finance function to hold contemporaneous documentation.

The Rs 20 crore aggregate threshold — and how it works

The Rs 20 crore threshold applies to the aggregate of all SDTs entered into by the assessee during the previous year, not to any single transaction. The threshold was raised from Rs 5 crore to Rs 20 crore by the Finance Act 2015 with effect from AY 2016-17 — the raise reflected the same compliance-cost calibration that eventually led to the 2017 omission of clause (i).

The aggregation runs across all five surviving clauses. A Rs 15 crore Section 80-IA(8) inter-unit transfer plus a Rs 8 crore Section 80-IA(10) close-connection arrangement plus a Rs 3 crore Section 10AA SEZ transaction aggregates to Rs 26 crore and the SDT regime triggers on all three. If any single one of the three had been the only SDT-eligible transaction and the aggregate was Rs 15 crore, the regime would not trigger and no Form 3CEB filing would be required for the SDT half.

On the illustrative Rs 45 crore SEZ inter-unit transfer plus Rs 8 crore contract manufacturing back-flow, the aggregate is Rs 53 crore — comfortably above threshold — and the SDT regime applies to both legs.

The Rule 10D documentation stack

Rule 10D of the Income-tax Rules lists thirteen categories of contemporaneous documentation the assessee must maintain — ownership structure, group profile, business description, industry analysis, nature and terms of each SDT, functional analysis (functions performed, assets employed, risks assumed), economic and market analyses, records of budgets and forecasts, description of the comparables selected, description of the transfer pricing method selected, working papers computing the arm’s length price, actual assumptions and price negotiations, and any adjustments to the comparable data.

The documentation must be in place by 31 October of the assessment year (the Section 92E specified date) and retained for eight years from the end of the relevant AY. On the illustrative Rs 53 crore SDT set, a mid-market TP study covering both legs typically runs Rs 15 lakh to Rs 25 lakh in professional fees depending on the number of tested transactions, the industry complexity, and the availability of comparable data on the ProwessIQ or Capitaline databases that most Indian TP practitioners rely on.

Rule 10DA layers on a Master File in Form 3CEAA where the consolidated group revenue in the preceding accounting year exceeds Rs 500 crore AND either the aggregate value of international transactions exceeds Rs 50 crore OR the aggregate purchase, sale, or transfer of intangible property exceeds Rs 10 crore. Rule 10DB layers on a Country-by-Country Report in Form 3CEAD where consolidated group revenue exceeds Rs 6,400 crore (approximately EUR 750 million, the OECD BEPS threshold). Both files primarily target international group structures but flow through to the SDT documentation position for Indian entities inside such groups.

Form 3CEB — the accountant’s report

Section 92E requires the assessee to obtain a report from a chartered accountant in practice covering every international transaction and every SDT entered into during the previous year. The prescribed form is Form 3CEB, filed by the specified date of 31 October of the assessment year — the same deadline as the tax audit report under Section 44AB and the transfer-pricing extended return under the second proviso to Section 139(1).

Form 3CEB lists each SDT, discloses the transfer pricing method adopted, the arm’s length price computed, whether contemporaneous Rule 10D documentation has been maintained, and whether the Master File and CbC obligations under Rule 10DA and 10DB apply. The statutory audit reconciliation checklist covers the parallel tax audit reporting that runs concurrently, and both filings share the same 31 October deadline.

The statutory audit preparation kit collects the working paper templates the audit-side reconciliation needs for the Form 3CEB SDT reporting to tie into the ITR filing without last-week firefighting.

The one to escalate first — the Section 92CA reference exposure

Once Form 3CEB is filed, the AO reviews the SDT disclosures during scrutiny under Section 143(3). Where the AO considers a reference to the Transfer Pricing Officer necessary, he refers the computation of the arm’s length price to the TPO under Section 92CA with the previous approval of the Principal Commissioner or Commissioner. The TPO then determines the arm’s length price by a written order after considering the evidence — including any information or documents required under Section 92D(3).

The TPO’s order must be passed at least 60 days before the Section 153 assessment order expiry. The Section 153 assessment window itself extends to 33 months from the end of the assessment year where a TPO reference has been made. For an FY 2025-26 (AY 2026-27) transaction, this pushes the outer assessment date to roughly December 2029 — the practical five-year window from the transaction date to the final assessment (before appeals) that the finance function budgets its provisioning against.

The penalty exposure that surfaces if the assessee has stonewalled the documentation or filing obligations — Section 271BA Rs 1 lakh flat, Section 271AA at two per cent of each SDT for documentation default or misreporting, Section 271G at a further two per cent during scrutiny, and Section 271AA(2) at Rs 5 lakh for Master File default — can stack to roughly four per cent of the aggregate transaction value in the worst case. On the illustrative Rs 53 crore SDT set, that is Rs 2.12 crore before any Section 270A misreporting exposure on the consequential income addition (at 200 per cent of tax on the addition where the misreporting limb is invoked).

When the manual TP working paper outgrows itself

For a single-entity, single-cluster SDT set — one SEZ unit, one DTA unit, a handful of inter-unit transfers — the Rule 10D documentation and the Form 3CEB filing fit inside a two-week discipline in September and October each year that the tax function runs alongside the tax audit. The Section 43B(h) MSME 45-day disallowance cascade is the parallel year-end disallowance discipline the same tax function typically holds concurrently.

Above a threshold of roughly ten SDT-eligible legs per year across multiple eligible units and multiple counterparties, or above a Section 10AA plus Section 80-IA overlap where the fifteen-year taper and the ten-year infrastructure holiday windows both apply, the manual documentation set stops holding — comparable data has to be refreshed against multiple industries, the functional analysis has to be re-run against multiple risk profiles, and the annual Master File under Rule 10DA becomes a rolling exercise rather than a September push.

At that scale, moving the SDT aggregation register and the Form 3CEB feeder schedule onto continuously refreshed detection — where Terra Insight’s reconciliation software tracks inter-unit transfer flows against the arm’s length pricing baseline as first-class monthly outputs — is what keeps the transfer pricing exposure priced into monthly close rather than surfacing as a year-end scramble. Below that scale, the manual Rule 10D working paper is the right template and the discipline of running the aggregation test month by month is what builds the tax function’s judgement for when scale demands the shift. The parallel TDS payment codes reference governs the withholding-tax leg on any SDT payment that also attracts Chapter XVII-B / Section 393(1) deduction.

Go deeper

• Transfer pricing for IT services captives — Section 92CA and the APA route
• SEZ net foreign exchange reconciliation across the five-year block
• CDMO contract manufacturing margin and transfer pricing
• Statutory audit reconciliation checklist — the parallel 31 October audit-side workload
• Statutory audit preparation kit — working paper templates for the tax audit and Form 3CEB tie-in
• TDS reconciliation software for India

Frequently Asked Questions

Does every related-party transaction above Rs 20 crore attract Section 92BA?

No — this is the most common misconception since the Finance Act 2017 changes. The original clause (i) of Section 92BA covered any expenditure paid to a person referred to in Section 40A(2)(b) — a plain related-party transaction. That clause was OMITTED with effect from Assessment Year 2017-18. After the omission, a related-party transaction in isolation does not attract SDT even if the aggregate crosses Rs 20 crore. The surviving triggers are Section 80A transactions, Section 80-IA(8) inter-unit transfers between eligible and non-eligible units, Section 80-IA(10) close-connection extraordinary-profit arrangements, any Chapter VI-A deduction or Section 10AA SEZ transaction to which the sub-section (8) or (10) machinery applies, and any other prescribed transaction. A pure Rs 30 crore related-party purchase from a group subsidiary that runs no Chapter VI-A or Section 10AA deduction does not attract SDT — though it may still attract Section 40A(2) disallowance scrutiny for excessive or unreasonable payment. The regime shifted from a related-party focus to a deduction-abuse focus in 2017.

The company transferred raw material from the domestic unit to the SEZ eligible unit at cost. Does that trigger SDT?

Yes — this is the textbook Section 80-IA(8) case that Section 92BA(iii) captures through the Section 10AA cross-reference in clause (v). Any transfer of goods or services between an eligible unit (SEZ, Section 80-IA infrastructure unit, or any Chapter VI-A eligible business) and any other business of the same assessee must happen at market value for the deduction computation. If the recorded consideration is below market value, the eligible unit’s profits are computed as if the transfer had happened at market value — which, in a SEZ case, inflates the Section 10AA deduction the assessee has effectively availed. The AO uses the SDT trigger to reference the arm’s length price to the Transfer Pricing Officer under Section 92CA, and the TPO tests whether the market value adopted actually reflects the arm’s length principle. Once the aggregate of all SDTs (this inter-unit transfer plus any other Section 80-IA(8), 80-IA(10) or Chapter VI-A / 10AA transaction the assessee entered into) crosses Rs 20 crore for the previous year, Form 3CEB filing and Rule 10D documentation become mandatory.

What actually goes into the Rule 10D documentation set?

Rule 10D lists thirteen categories of contemporaneous documentation the assessee must maintain — ownership structure of the assessee, profile of the multinational group, description of the business and industry, nature and terms of each SDT, functions-assets-risks analysis (the FAR analysis), economic and market analyses, records of budgets and forecasts, description of uncontrolled transactions used as comparables, description of the transfer pricing method selected and why, working papers computing the arm’s length price, actual assumptions and price negotiations, and any adjustments made to comparable data. The documentation must be in place by the Section 92E specified date (31 October of the assessment year) and retained for eight years from the end of the relevant AY. Where the group crosses the Rs 500 crore consolidated revenue threshold, an additional Master File under Rule 10DA in Form 3CEAA (Part B) is required. Where the group crosses the Rs 6,400 crore consolidated revenue threshold, a Country-by-Country Report under Rule 10DB in Form 3CEAD is required — CbC applies mainly to international groups but the underlying entity-level documentation flows through to the SDT position. A typical mid-market TP study for a single-cluster SDT set (SEZ transfers, inter-unit charges, cost-allocation between eligible and non-eligible units) runs Rs 15 lakh to Rs 25 lakh in professional fees depending on the number of tested transactions.

The tax auditor asked whether we need Form 3CEB. When exactly is it triggered?

Form 3CEB is triggered under Section 92E the moment the assessee enters into even one specified domestic transaction during the previous year, regardless of value — the Rs 20 crore threshold in Section 92BA gates whether the transaction is an SDT at all, but once it is, Form 3CEB is mandatory. In practice this means the finance team runs the aggregate test first: sum every candidate transaction across the five surviving Section 92BA clauses for the year, and if the aggregate exceeds Rs 20 crore, the entire set becomes SDT and Form 3CEB must be filed listing each. If the aggregate does not exceed Rs 20 crore for the year, none of the candidate transactions are SDT and Form 3CEB is not required for the SDT half. Form 3CEB may still be required for international transactions under the same form — the two disclosure sets share the form, and an assessee with only international transactions and no SDT still files a Form 3CEB covering the international side. The 31 October assessment year filing date aligns with the tax audit report and the transfer-pricing extended return under Section 139(1).

What is the worst-case penalty exposure on a missed Form 3CEB or missing documentation?

Three penalties stack independently and are cumulative in nature. Section 271BA imposes a flat Rs 1,00,000 penalty for failure to furnish Form 3CEB by the specified date under Section 92E. Section 271AA imposes a penalty equal to two per cent of the value of each SDT for failure to keep and maintain the Rule 10D documentation, or for failure to report the transaction in the accountant’s report, or for maintaining incorrect information or documents. Section 271G imposes a further two per cent of the value of each SDT where the assessee fails to furnish any information or document required under Section 92D(3) during the course of assessment proceedings — this is the penalty the TPO invokes when the assessee stonewalls a document requisition mid-scrutiny. On the illustrative Rs 45 crore SEZ transfer, the Section 271AA exposure alone is Rs 90 lakh; Section 271G is another Rs 90 lakh; the Section 271BA Rs 1 lakh sits on top. The Section 271AA(2) sub-limb also imposes Rs 5 lakh for failure to furnish Master File information under Rule 10DA where the Master File was required. The composite penalty ceiling on a badly-managed SDT year for a mid-market taxpayer can approach four per cent of the transaction value once the three heads and the Master File default combine, before Section 270A misreporting exposure at 200 per cent of tax on any consequential income addition.

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