Comparison of Section 162 of the Income Tax Bill 2025 with Section 92A of the Income Tax Act 1961

The concept of Associated Enterprises (AEs) plays a crucial role in transfer pricing regulations. It ensures that transactions between related entities are fair and transparent, preventing tax avoidance through profit shifting.

Under the Income Tax Act, 1961, the definition of associated enterprises was provided under Section 92A. The new Income Tax Bill, 2025, replaces this with Section 162, which carries forward the same core principles while improving structural clarity.

1. Purpose and Scope

Both Section 92A (1961 Act) and Section 162 (2025 Bill) define the term "associated enterprise" to determine whether two entities have a close economic relationship that could influence their pricing of transactions.

This definition is critical for transfer pricing regulations because it ensures that transactions between related parties adhere to the arm’s length principle, preventing tax avoidance through undue profit shifting.

2. Key Provisions and Comparisons

Definition of Associated Enterprise

• Section 92A (1961 Act): Defines an associated enterprise as one that participates, directly or indirectly, in the management, control, or capital of another enterprise.
• Section 162 (2025 Bill): Retains the same core definition, ensuring consistency in identifying related entities.

Criteria for Determining Associated Enterprises

Both sections list specific conditions under which two entities are deemed to be associated enterprises. These conditions remain largely unchanged between the 1961 Act and the 2025 Bill, with minor modifications for clarity.

1. Direct or Indirect Shareholding If one enterprise holds 26% or more of the voting power in another, or if a third entity holds at least 26% in both entities, they are considered associated enterprises. This remains unchanged in Section 162.
2. Loan Transactions and Financial Dependence If a loan advanced by one enterprise constitutes 51% or more of the book value of the total assets of the other enterprise, they are deemed to be associated. Section 162 follows the same provision as Section 92A.
3. Guarantees on Borrowings If one enterprise guarantees 10% or more of the total borrowings of the other enterprise, they are associated. This provision remains unchanged in the 2025 Bill.
4. Control Over Board of Directors If one entity appoints more than half of the board of directors or governing members of another, they are considered associated. This rule is retained in Section 162.
5. Dependency on Intellectual Property (IP) Rights If one enterprise’s business wholly depends on the use of patents, trademarks, copyrights, licenses, or any other intellectual property owned by another enterprise, they are deemed to be associated. Section 162 maintains this rule with clearer language.
6. Exclusive Business Arrangements If 90% or more of the raw materials and consumables required by one enterprise are supplied by the other, or if the prices of goods and services are significantly influenced by one entity, they are associated. This remains the same in the new bill.
7. Common Control by an Individual or Family If both enterprises are controlled by the same individual, Hindu Undivided Family (HUF), or their relatives, they are deemed associated. This is unchanged in Section 162.
8. Holding of Interest in a Partnership or Association If one enterprise holds at least 10% interest in a firm, association of persons (AOP), or body of individuals (BOI), it is considered associated with the other enterprise. No major changes in Section 162.
9. Any Other Relationship of Mutual Interest The tax authorities may prescribe other relationships that qualify as associated enterprises. This provision is retained with more streamlined wording in the new bill.

3. Key Differences Between Section 92A and Section 162

1. Modernized Legislative Framework Section 92A was structured within the Income Tax Act, 1961, with references to other provisions in Chapter X. Section 162 integrates these provisions into the revised Income Tax Bill, 2025, making it more aligned with international tax frameworks.
2. Expanded Clarity on Specified Domestic Transactions (SDTs) The 1961 Act did not explicitly connect associated enterprises to specified domestic transactions at the time of introduction. Section 162 now clearly integrates these transactions, ensuring they fall under transfer pricing rules when applicable.
3. Improved Cross-Referencing with Other Sections Section 92A referenced other transfer pricing provisions such as Section 92B (international transactions) and Section 92C (arm’s length pricing methods). In the 2025 Bill, cross-referencing is updated, making it easier to interpret and apply the law.
4. Alignment with OECD and BEPS Standards The new law incorporates global best practices, ensuring that India’s definition of associated enterprises remains consistent with OECD guidelines and BEPS recommendations.

4. Implications for Businesses

For multinational corporations (MNCs), foreign subsidiaries, and domestic enterprises engaging in related-party transactions, the transition from Section 92A to Section 162 means:

? No major change in compliance requirements—associated enterprises are still identified using similar ownership and control thresholds. ? Greater clarity in legal interpretation, making it easier to determine whether two entities are associated. ? Clearer inclusion of specified domestic transactions, ensuring that tax benefits are not misused in transactions between Indian entities. ? Better global alignment, helping businesses comply with both Indian tax laws and international regulations.

5. Final Thoughts

The shift from Section 92A (1961 Act) to Section 162 (2025 Bill) does not alter the fundamental definition of Associated Enterprises. However, it provides a clearer, more structured framework that enhances interpretation and compliance.

For businesses involved in transfer pricing, the updated section ensures consistency and reinforces India’s commitment to preventing profit shifting.