Section 92 of Income Tax Act 1961: Arm's Length Price for International Transactions

Section 92 formed the basic computation rule for transfer pricing under the Income-tax Act, 1961. It required income, expenses and specified cost allocations connected with international transactions and specified domestic transactions to be determined with reference to the arm's length price.

Updated: 28 September 2026

Current law note: The Income-tax Act, 2025 is the current statutory framework from 1 April 2026. The corresponding transfer-pricing computation provision is now Section 161 of the Income-tax Act, 2025. This page retains Section 92 of the Income-tax Act, 1961 for reference to the earlier law and explains the current corresponding provision so that the legacy section number is not confused with Section 92 of the new Act.

In simple terms: the transfer-pricing rule seeks to compute covered transactions as if the parties had dealt with each other at an arm's length price. The detailed method for determining that price is contained in the related transfer-pricing provisions rather than in Section 92 alone.

What did Section 92 of the Income-tax Act, 1961 provide?

Section 92 appeared in Chapter X, dealing with special provisions relating to avoidance of tax. Its core rule was that income arising from an international transaction had to be computed having regard to the arm's length price. The provision also covered the allowance of expenses or interest and certain allocations or contributions to costs.

Section 92(1): income, expense and interest

Income arising from an international transaction was required to be computed having regard to the arm's length price.

The Explanation clarified that an allowance for any expense or interest arising from an international transaction was also to be determined having regard to the arm's length price.

Section 92(2): allocation or apportionment of costs

Where two or more associated enterprises entered into an agreement or arrangement concerning allocation, apportionment or contribution to a cost or expense for a benefit, service or facility, the relevant amount had to be determined having regard to the arm's length price of that benefit, service or facility. This rule extended to international transactions and specified domestic transactions covered by the provision.

Section 92(2A): specified domestic transactions

For a specified domestic transaction, an allowance for expenditure or interest, allocation of cost or expense, or income was required to be computed having regard to the arm's length price.

Section 92(3): no downward adjustment

Section 92 did not apply where the transfer-pricing computation would have the effect of reducing income chargeable to tax or increasing the loss shown on the basis of the entries in the books of account for the relevant previous year. In effect, the provision was not intended to be used to obtain a downward adjustment in the circumstances specified in sub-section (3).

Important definitions connected with Section 92

Arm's length price

An arm's length price is the price determined under the transfer-pricing provisions for a transaction between associated enterprises by applying the prescribed method and rules. Under the current Income-tax Act, 2025, determination of arm's length price is dealt with in Section 165.

International transaction

An international transaction broadly concerns a transaction between associated enterprises where the statutory conditions for an international transaction are satisfied. The definition and deeming rules must be read with the applicable transfer-pricing chapter because the expression covers more than a simple cross-border sale or purchase.

Associated enterprise

An associated enterprise is an enterprise connected with another enterprise through the participation, management, control, capital or other relationships specified by the transfer-pricing law. Under the current Income-tax Act, 2025, the corresponding provision is Section 162.

Specified domestic transaction

Under the earlier Income-tax Act, 1961, Section 92BA identified specified domestic transactions for transfer-pricing purposes. Under the current Income-tax Act, 2025, the corresponding provision is Section 164. The statutory threshold and covered categories should always be checked for the relevant tax year.

Current position under the Income-tax Act, 2025

For tax years governed by the Income-tax Act, 2025, the corresponding computation rule is Section 161. It provides, in substance, that income arising from an international transaction or specified domestic transaction is determined having regard to the arm's length price. Expenses or interest arising from such transactions are similarly determined, and the rule also applies to qualifying cost-allocation or contribution arrangements between associated enterprises.

Subject	Income-tax Act, 1961	Income-tax Act, 2025
Core arm's length computation rule	Section 92	Section 161
Associated enterprise	Section 92A	Section 162
Specified domestic transaction	Section 92BA	Section 164
Determination of arm's length price	Section 92C	Section 165
Reference to Transfer Pricing Officer	Section 92CA	Section 166
Transfer-pricing documentation	Section 92D	Section 171
Accountant's report	Section 92E	Section 172

How arm's length price is determined

The arm's length price is not chosen arbitrarily. The law prescribes recognised transfer-pricing methods and requires selection and application of the most appropriate method having regard to the transaction and relevant facts. Under the Income-tax Act, 2025, Section 165 lists the recognised methods, while the Income-tax Rules, 2026 prescribe the detailed mechanics.

Comparable uncontrolled price method.
Resale price method.
Cost plus method.
Profit split method.
Transactional net margin method.
Other prescribed method.

Compliance and reporting

Transfer pricing is not limited to the computation provision. A taxpayer with covered transactions may also have documentation, accountant-reporting and procedural obligations. Under the current framework, Section 171 addresses information and documentation, while Section 172 provides for the accountant's report relating to international transactions and specified domestic transactions. The notified Income-tax Rules, 2026 and prescribed forms should be checked for the applicable tax year.

Practical effect of the arm's length rule

Where a covered transaction is not at arm's length, the tax computation may be adjusted in accordance with the transfer-pricing provisions. The analysis ordinarily requires identification of the transaction, the associated-enterprise relationship, functions performed, assets employed, risks assumed, reliable comparable data and the most appropriate transfer-pricing method.

Related provisions

For a complete transfer-pricing analysis, Section 92 should not be read in isolation. The surrounding provisions deal with associated enterprises, international transactions, specified domestic transactions, methods for determining arm's length price, reference to the Transfer Pricing Officer, documentation and accountant reporting.

Note: This article is a general legal and tax information resource. Applicability can depend on the tax year, transaction, parties, statutory thresholds, rules, notifications and facts of the case.