Section 173 Income Tax Act 2025: What Do Transfer Pricing Terms Mean?
Section 173 defines five expressions used in India's transfer pricing provisions: arm's length price, enterprise, permanent establishment, specified date and transaction. These definitions help determine how related-party transactions are identified, valued, documented and reported.
Where does Section 173 apply?
The opening words of section 173 apply its definitions to section 173 itself and sections 161, 162, 163, 165, 171 and 172, unless the context otherwise requires.
What are the five definitions in Section 173?
1. Arm's length price - Section 173(a)
The arm's length price is the price applied, or proposed to be applied, in a transaction between persons other than associated enterprises under uncontrolled conditions. It supplies the independent-party benchmark for transfer pricing analysis.
Determining the applicable arm's length price requires the methods and rules under section 165; the definition alone does not prescribe a pricing method.
2. Enterprise - Section 173(b)
An enterprise means a person, including that person's permanent establishment, who is, has been or is proposed to be engaged in the following activities:
- Production, storage, supply, distribution, acquisition or control of articles or goods.
- Know-how, patents, copyrights, trade-marks, licences, franchises or similar commercial rights.
- Data, documentation, drawings or specifications relating to patents, inventions, models, designs, secret formulae or processes in which the other enterprise has ownership or exclusive rights.
- Provision of services of any kind.
- Performance of work under a contract.
- Investment or provision of loans.
- Acquiring, holding, underwriting or dealing in shares, debentures or other securities of another body corporate.
The activity may be carried on directly or through units, divisions or subsidiaries, at the same location or elsewhere. Whether two enterprises are associated enterprises is separately addressed in section 162.
3. Permanent establishment - Section 173(c)
For the enterprise definition in clause (b), permanent establishment includes a fixed place of business through which the enterprise's business is wholly or partly carried on. The provision uses inclusive wording; its application to particular facts and tax treaty questions needs separate examination.
4. Specified date - Section 173(d)
The specified date is one month before the due date for furnishing the return of income under section 263(1) for the relevant tax year. This definition is important for the accountant's report required under section 172.
The actual calendar date depends on the applicable return-filing due date, including any valid statutory change or extension. Do not assume the same reporting deadline for every taxpayer or tax year.
5. Transaction - Section 173(e)
A transaction includes an arrangement, understanding or action in concert, whether or not it is formal or recorded in writing and whether or not it is intended to be legally enforceable. Consequently, an informal or unwritten understanding cannot be disregarded merely because no signed agreement exists.
Practical examples
How should businesses apply these definitions?
- Identify the legal persons and any permanent establishments involved.
- Assess associated-enterprise status under section 162 and transaction coverage under sections 163 and 164.
- Record written and unwritten commercial arrangements, including services, financing and intellectual-property dealings.
- Determine pricing under section 165 and maintain applicable records under section 171.
- Confirm the section 172 accountant-report deadline by reference to the actual section 263(1) due date.
Frequently asked questions
Does Section 173 itself calculate arm's length price?
No. It defines the expression. Section 165 and the applicable rules govern determination.
Can an unwritten arrangement count as a transaction?
Yes. Section 173(e) expressly includes informal and unwritten arrangements, subject to the relevant charging and transfer pricing provisions.
Is every enterprise automatically an associated enterprise?
No. Section 173(b) defines enterprise; the association tests are set out separately in section 162.
What is the corresponding provision under the 1961 Act?
Section 92F of the Income-tax Act, 1961 broadly corresponds to section 173 of the 2025 Act.
Statutory text and related resources
Last reviewed: 10 November 2026. This article is general legal information; statutory amendments, notifications and applicable rules should be checked for a particular tax year.