Comparison of Section 163 of the Income Tax Bill 2025 with Section 92B of the Income Tax Act 1961

Transfer pricing regulations in India play a critical role in ensuring that transactions between associated enterprises (AEs) follow the arm’s length principle (ALP) to prevent profit shifting and tax avoidance.

One of the key provisions in this regard is the definition of “international transaction”, which determines the scope of transfer pricing rules. Section 92B of the Income Tax Act, 1961, and Section 163 of the Income Tax Bill, 2025, both define the term "international transaction", with some refinements in the latter.

This article provides a detailed comparison of the two provisions.

1. Purpose and Scope

Both Section 92B (1961 Act) and Section 163 (2025 Bill) define what qualifies as an international transaction for transfer pricing purposes. The term “international transaction” covers cross-border transactions between associated enterprises, ensuring that they are priced fairly and do not result in tax avoidance.

The new Section 163 in the Income Tax Bill, 2025, largely retains the same scope and intent as Section 92B, but restructures and clarifies some definitions to make compliance easier.

2. Key Provisions and Comparisons

Definition of International Transaction

• Section 92B (1961 Act): Defines an international transaction as a transaction between two or more associated enterprises, either or both of whom are non-residents.
• Section 163 (2025 Bill): The definition is slightly refined to specify that at least one entity must be a non-resident. This clarifies the scope of transfer pricing rules.

Types of Transactions Covered

Both sections list specific types of transactions that qualify as international transactions. These remain largely unchanged between the two provisions.

1. Transactions Involving Tangible Property Both sections include the purchase, sale, transfer, lease, or use of tangible property such as buildings, machinery, equipment, vehicles, commodities, and other physical goods.
2. Transactions Involving Intangible Property Both sections cover intangible assets like patents, trademarks, copyrights, franchises, know-how, customer lists, and commercial rights. Section 163 provides a more detailed breakdown of intangible assets, improving clarity.
3. Capital Financing Transactions Both sections include: ? Lending and borrowing of money (both short-term and long-term). ? Guarantees, advances, deferred payments, and sale of securities.
4. Provision of Services Both sections include services such as market research, marketing, administration, technical services, legal services, and accounting services.
5. Business Restructuring and Reorganization Both sections specify that even if a restructuring does not immediately impact profits, it will still be covered under international transaction rules.
6. Cost Sharing Agreements Both sections recognize cost-sharing agreements where associated enterprises allocate or contribute towards expenses related to shared services.
7. Other Transactions Affecting Profits, Income, Losses, or Assets Both sections include a general clause covering any transaction that affects the profits, income, losses, or assets of an associated enterprise.

3. Key Differences Between Section 92B and Section 163

1. Clarification on Non-Resident Involvement Section 92B: States that an international transaction must involve at least one associated enterprise that is a non-resident. Section 163: Further clarifies this point, ensuring that transactions between two Indian entities do not fall under international transaction rules unless they have a direct foreign link.
2. More Detailed Definition of Intangible Assets Section 92B had a general list of intangible assets, such as trademarks, patents, and copyrights. Section 163 expands this list to include: ? Human capital-related assets (trained workforce, employment contracts). ? Location-related assets (mineral rights, leasehold interests). ? Contract-related assets (franchise agreements, non-compete agreements).
3. Expanded Definition of Deemed International Transactions Both sections state that a transaction with an unrelated party will be considered an international transaction if: ? There is a prior agreement between the unrelated party and an associated enterprise. ? The terms of the transaction are influenced by an associated enterprise. Section 163 strengthens this rule by making it more explicit and ensuring that indirect control by foreign entities is captured.
4. Improved Structure and Cross-Referencing Section 92B referred to various provisions in the 1961 Act, making interpretation complex. Section 163 integrates all relevant provisions into the new tax structure, making compliance easier.

4. Implications for Businesses

For multinational corporations (MNCs), Indian subsidiaries of foreign companies, and businesses engaged in cross-border transactions, the transition from Section 92B to Section 163 means:

? No major change in compliance requirements—transactions covered under 92B remain covered under 163. ? Clearer definitions of intangible property, ensuring better compliance in IP-heavy industries like tech, pharma, and manufacturing. ? More explicit treatment of deemed international transactions, preventing tax avoidance through indirect agreements. ? Easier interpretation due to improved structuring and cross-referencing in the 2025 Bill.

5. Final Thoughts

The shift from Section 92B (1961 Act) to Section 163 (2025 Bill) does not introduce major substantive changes but enhances clarity and streamlines compliance. The improved definitions of intangible property and deemed international transactions help businesses better understand their tax obligations.

For businesses operating across borders, this ensures a more transparent and structured framework, aligned with global transfer pricing norms.