Comparison of Section 161 of the Income Tax Bill 2025 with Section 92 of the Income Tax Act 1961

The concept of transfer pricing and ensuring that international and specified domestic transactions are carried out at arm’s length price (ALP) is a fundamental part of India’s tax law. Section 92 of the Income Tax Act, 1961, and the newly introduced Section 161 of the Income Tax Bill, 2025, both focus on maintaining fair pricing in transactions between associated enterprises.

While both sections aim to achieve the same purpose, there are some structural and procedural updates in the 2025 Bill. Below is a detailed comparison of the two sections.

1. Purpose and Scope

Both Section 92 (1961 Act) and Section 161 (2025 Bill) focus on ensuring that transactions between associated enterprises (AEs) follow the arm’s length principle. This applies to:

• International transactions between related parties.
• Specified domestic transactions, which were included under Section 92 by the Finance Act, 2012.

In simple terms, these provisions ensure that multinational companies do not manipulate pricing to shift profits and avoid taxes. Any income, expenses, or costs arising from such transactions must be determined at fair market value (i.e., arm’s length price).

2. Key Provisions and Comparisons

1. Computation of Income Based on Arm’s Length Price
2. Allowance for Expenses or Interest
3. Cost Sharing Agreements Between Associated Enterprises
4. Restriction on Reduction of Taxable Income

3. Key Differences Between Section 92 and Section 161

1. Structural Reorganization and Modernization
2. Clarity on Specified Domestic Transactions (SDTs)
3. Consistency with International Best Practices
4. Updated Terminology and Cross-Referencing

4. Implications for Businesses

For multinational corporations (MNCs), large businesses, and entities engaged in cross-border transactions, the transition from Section 92 to Section 161 means:

• No major changes in compliance requirements—transfer pricing documentation and arm’s length pricing still apply.
• More streamlined regulations—the 2025 Bill makes it easier to interpret and apply transfer pricing norms.
• Increased focus on fair pricing in domestic transactions—businesses engaged in specified domestic transactions (such as transactions between related Indian companies with significant tax benefits) must ensure compliance.

5. Final Thoughts

The shift from Section 92 (1961 Act) to Section 161 (2025 Bill) does not introduce major changes in the substance of transfer pricing regulations. However, the restructured legal framework aims to make compliance smoother and more aligned with global standards.

For businesses operating in multiple jurisdictions, this continuity in transfer pricing regulations ensures a stable and predictable tax environment. While procedural aspects may change with the Income Tax Bill, 2025, the core transfer pricing principles remain intact.