Section 170 Income Tax Act 2025: When Is Secondary Adjustment Required?

Section 170 of the Income-tax Act, 2025 addresses the financial consequences of certain transfer pricing adjustments. Where a qualifying primary adjustment leaves excess money with an associated enterprise, the law provides for repatriation, a deemed advance and interest, or an option to pay additional income-tax.

What is a secondary adjustment under Section 170?

A primary transfer pricing adjustment aligns the taxable income or loss with the arm's length principle. A secondary adjustment addresses the corresponding difference between the profit reflected for tax purposes and the funds actually held by the parties. Section 170 therefore connects the transfer pricing computation with the financial position of the assessee and its associated enterprise.

Section 170(1): When must an assessee make a secondary adjustment?

The obligation arises where a primary adjustment of Rs. 1 crore or more to the transfer price falls within one of the following statutory situations:

1. The assessee makes the primary adjustment voluntarily in its return of income.
2. The Assessing Officer makes the adjustment and the assessee accepts it.
3. The adjustment is determined under an advance pricing agreement under Section 168.
4. The adjustment is made under safe harbour rules framed under Section 167.
5. The adjustment arises from resolution under the mutual agreement procedure pursuant to an agreement under Section 159 for avoidance of double taxation.

The Rs. 1 crore threshold is expressed in the provision as "one crore rupees or more"; it is not restricted to amounts strictly exceeding Rs. 1 crore.

Section 170(2) to (4): Repatriation of excess money and deemed advance

When does excess money become a deemed advance?

Where the primary adjustment increases total income or reduces a loss and the resulting excess money, or part of it, remains with the associated enterprise without being repatriated to India within the prescribed time, that amount is deemed to be an advance made by the assessee to the associated enterprise.

Under Section 170(3), the excess money or part thereof may be repatriated from any associated enterprise of the assessee that is non-resident in India, subject to the statutory requirements.

Section 170(4) provides that interest on the deemed advance is calculated in the prescribed manner. The applicable deadline and interest methodology should be checked against Rule 83 of the Income-tax Rules, 2026, including any amendments relevant to the tax year and transaction.

Section 170(5) to (8): Option to pay 18% additional income-tax

If the excess money or a part of it is not repatriated within the prescribed time, the assessee may opt to pay additional income-tax at 18% on that unrepatriated amount.

• Final payment: Tax paid under this option is treated as final payment in respect of the excess money or part thereof not repatriated.
• No tax credit: Neither the assessee nor any other person may claim a further credit for that tax.
• No deduction: A deduction under another provision of the Act is not allowed in respect of the amount on which this additional tax is paid.
• Effect on adjustment and interest: From the date the additional tax is paid, the assessee is not required to make the secondary adjustment under Section 170(1) or compute interest under Section 170(4).

Section 170(9): Relevant statutory definitions

For related concepts, see Section 162: Associated enterprise, Section 163: International transaction and Section 165: Determination of arm's length price.

Practical illustration of secondary adjustment

Suppose an Indian company charges its overseas associated enterprise Rs. 8 crore for services, but the arm's length consideration is determined to be Rs. 9.5 crore. The resulting primary adjustment is Rs. 1.5 crore. Assuming that this is a qualifying adjustment under Section 170(1), the secondary adjustment provisions apply.

If the excess Rs. 1.5 crore is not repatriated within the prescribed period, the unrepatriated amount may be treated as a deemed advance and interest computed under the prescribed rules. Alternatively, the assessee may consider the Section 170(5) option. On an unrepatriated amount of Rs. 1.5 crore, 18% equals Rs. 27 lakh before considering any other applicable payment components.

This is an illustrative calculation, not a determination of the taxpayer's final liability. The direction of the pricing adjustment, eligibility and prescribed rules must be verified for the actual facts.

Practical compliance checklist

• Identify the primary adjustment and whether it is at least Rs. 1 crore.
• Record which of the five situations under Section 170(1) applies.
• Reconcile the transfer pricing adjustment with receivables, cash and intercompany balances.
• Confirm the applicable repatriation deadline and prescribed interest calculation.
• Maintain evidence of remittances from qualifying non-resident associated enterprises.
• Evaluate the statutory 18% additional income-tax option and document the decision.
• Retain transfer pricing documentation, orders, APA/MAP records and supporting accounting entries.

Frequently asked questions

Is secondary adjustment required for every transfer pricing adjustment?

No. Section 170(1) specifies a threshold of Rs. 1 crore or more and enumerates the circumstances in which the requirement arises.

What happens if excess money is not brought back to India?

Subject to the statutory conditions, the unrepatriated amount may be treated as a deemed advance with prescribed interest. Section 170(5) also provides an option to pay 18% additional income-tax on the unrepatriated amount.

Can excess money be repatriated from a different group company?

Section 170(3) permits repatriation from any associated enterprise of the assessee that is non-resident in India.

Which provision of the 1961 Act corresponds to Section 170?

Section 92CE of the Income-tax Act, 1961 is the corresponding provision dealing with secondary adjustment in certain cases.

Statutory text and official resources

Last reviewed: 10 November 2026. This article provides general statutory information and should be read with the applicable rules, notifications and case-specific facts.