Section 92C of Income Tax Act: Computation of Arm's Length Price
Section 92C lays down how the arm's length price is determined for an international transaction or a specified domestic transaction. It works with the transfer pricing provisions in Chapter X of the Income Tax Act, 1961 and the prescribed methods and comparability rules in the Income Tax Rules, 1962.
Updated: 28 September 2026. This article explains the operative framework of Section 92C and related Rules 10A, 10AB, 10B, 10C and 10CA.
What is arm's length price?
Section 92F(ii) defines arm's length price as a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions. Section 92C provides the statutory mechanism for determining that price.
Methods for determining arm's length price under Section 92C(1)
The arm's length price must be determined by the method that is most appropriate to the facts and circumstances of the transaction. Section 92C(1) recognizes the following methods:
- Comparable Uncontrolled Price Method (CUP): compares the price charged or paid in a comparable uncontrolled transaction.
- Resale Price Method (RPM): generally starts with the resale price to an unrelated party and adjusts it for an appropriate gross margin and relevant differences.
- Cost Plus Method (CPM): applies an appropriate gross profit mark-up to relevant direct and indirect costs, subject to comparability adjustments.
- Profit Split Method (PSM): identifies and allocates the combined profit from controlled transactions on an economically valid basis reflecting the parties' contributions.
- Transactional Net Margin Method (TNMM): examines an appropriate net profit margin relative to costs, sales, assets or another relevant base.
- Other prescribed method: Rule 10AB permits a method that takes into account the price charged or paid, or that would have been charged or paid, for the same or a similar uncontrolled transaction under similar circumstances.
Rules 10B and 10AB contain the detailed mechanics of these methods.
Most appropriate method under Section 92C(2)
The method selected under Section 92C(1) must be applied in the prescribed manner. Rule 10C requires selection of the method best suited to the facts and circumstances and capable of providing the most reliable measure of arm's length price. Relevant factors include the nature of the transaction, functions performed, assets employed, risks assumed, availability and reliability of data, degree of comparability, possible adjustments and the reliability of assumptions.
Rules 10A and 10B support the comparability analysis, while Rule 10CA governs determination of arm's length price in specified cases where the application of the most appropriate method produces more than one price.
Multiple prices, arm's length range and tolerance
Section 92C(2) contains rules for cases where the most appropriate method yields more than one price. For qualifying transactions undertaken on or after 1 April 2014, the prescribed range mechanism in Rule 10CA may apply. Under the current Rule 10CA framework, where its conditions are satisfied, an arm's length range is constructed from the 35th percentile to the 65th percentile of the dataset. If the actual transaction price falls within that range, the actual price is treated as the arm's length price; if it falls outside, the median is used, subject to the detailed rule.
Always check the notification applicable to the relevant assessment year before relying on a tolerance percentage.
When can the Assessing Officer determine arm's length price?
Under Section 92C(3), during assessment proceedings the Assessing Officer may determine the arm's length price on the basis of available material, information or documents where the statutory conditions are met. These include cases where the transaction price was not determined in accordance with Section 92C(1) and (2), prescribed information or documents under Section 92D were not maintained, the data used is unreliable or incorrect, or required information was not furnished within the specified time.
Before making such determination, the assessee must be given an opportunity by notice to show cause why the arm's length price should not be determined on the basis of the material, information or documents in the Assessing Officer's possession.
Section 92CA separately deals with reference to the Transfer Pricing Officer. Transfer pricing procedure should therefore be read with Section 92CA and the applicable rules and CBDT instructions.
Effect of determination under Section 92C(4)
Where the Assessing Officer determines an arm's length price under Section 92C(3), total income may be computed having regard to that price. Section 92C(4) also contains consequences concerning deductions and the corresponding income of an associated enterprise. These consequences should be read with the current text of the Act and other applicable transfer pricing provisions.
Related transfer pricing provisions
Section 92C forms part of an integrated statutory scheme. Important connected provisions include Section 92A - associated enterprise, Section 92B - international transaction, Section 92BA - specified domestic transaction, Section 92CA - reference to TPO, Sections 92CB and 92CC - safe harbour and advance pricing agreement, Section 92CD - effect of APA, Section 92D - information and documents and Section 92F - definitions.
Practical reading of Section 92C
For a transfer pricing analysis, first identify the covered transaction and associated enterprises, select the most appropriate method, identify reliable comparables, make permissible comparability adjustments, apply the relevant Rules 10A to 10CA, and then test whether any assessment-year-specific tolerance or prescribed range rule applies. Documentation requirements under Section 92D and the accountant's report under Section 92E may also be relevant.
This page is a general legal information resource. The applicable provision, rule, notification and assessment year should be checked for the facts of a particular case.