When a transfer pricing adjustment increases an Indian company's income — whether made by the company itself, accepted in assessment, agreed in an APA, declared under safe harbour or settled in MAP — section 170 of the Income-tax Act, 2025 (old section 92CE) treats the excess money that the associated enterprise now holds as an advance to the AE. If the primary adjustment exceeds ₹1 crore, that money must be brought into India within 90 days; otherwise interest at the prescribed rate is imputed on it year after year as income. The company can instead pay a one-time additional income-tax at 18% (plus surcharge and cess) on the un-repatriated amount, after which no further interest is imputed.
Key facts
| Provision | Old reference (to 31 Mar 2026) | New reference (from 1 Apr 2026) | Rate / threshold | Timing | Form |
|---|---|---|---|---|---|
| Secondary adjustment | s. 92CE | s. 170 | Applies where primary adjustment > ₹1 crore | Tax year 2026-27 onwards (and earlier years under old law) | — |
| Triggers | s. 92CE(1)(i)–(v) | s. 170 | Suo motu adjustment in return; AO adjustment accepted; APA; safe harbour; MAP resolution | — | — |
| Repatriation period | Rule 10CB | Prescribed rule under 2025 Rules | — | 90 days from the return due date / order date / APA signing / MAP resolution, as applicable | — |
| Imputed interest on un-repatriated excess | Rule 10CB(2) | Prescribed rule | One-year marginal cost of funds lending rate of SBI + 325 bps (INR); 6-month benchmark + 300 bps (foreign currency) — as carried over | Annually until repatriated | — |
| One-time additional tax option | s. 92CE(2A): 18% + 12% surcharge + cess | s. 170 | 18% + surcharge + cess on the un-repatriated amount; not deductible; no credit | Any time; interest imputed up to payment date | Challan |
| Non-applicability | Primary adjustment ≤ ₹1 crore, or AY 2016-17 or earlier | Carried over | — | — | — |
The logic
A primary transfer pricing adjustment changes the Indian company's taxable income but not its cash. If the Indian subsidiary should have charged ₹20 crore and charged ₹18 crore, India taxes the extra ₹2 crore — but the parent still holds the ₹2 crore. Economically, the Indian company has lent that money to the parent for nothing. The secondary adjustment closes that gap: the ₹2 crore is deemed an advance, and if it is not actually paid back to India within 90 days, India taxes a notional interest on it every year until it is.
The five triggers
- The taxpayer itself makes an upward adjustment in its return (a suo motu adjustment).
- The Assessing Officer or TPO makes an adjustment which the taxpayer accepts (i.e. does not appeal).
- An APA fixes a price that results in an adjustment.
- The taxpayer declares a safe harbour margin higher than its booked margin.
- A MAP resolution results in an adjustment.
The provision does not apply where the primary adjustment in a year is ₹1 crore or less. Note that an adjustment made by the department and contested in appeal does not trigger the secondary adjustment until the dispute is settled against the taxpayer and accepted.
The 90-day clock
The Rules fix the start of the 90 days by trigger: the due date for filing the return where the adjustment is suo motu or under safe harbour; the date of the order where an assessment adjustment is accepted; the date of signing the APA; the date the MAP resolution is given effect. The money must actually arrive in India — a book entry netting it against other payables is not repatriation unless the Rules' conditions for set-off are met — and it is received as a receipt of the advance, not as fresh income.
Interest or one-time tax
If the excess money is not repatriated in time, interest is imputed each year at the rate the Rules prescribe (a benchmark lending rate plus a spread, depending on whether the intercompany account is in rupees or foreign currency) and added to income. The alternative is a one-time additional tax at 18% plus surcharge and cess on the amount not repatriated. Paying it ends the imputed interest from that point; the tax is final — not deductible and not creditable — and the company is not then required to repatriate. For groups where the parent cannot or will not return the money (cash is locked, or the parent's jurisdiction does not recognise the adjustment), the one-time tax is often the cleaner answer.
Interaction with the parent's country
A repatriation is a cash payment from the parent to the Indian subsidiary with no fresh supply attached. The parent's tax authority may ask what it is for; where the primary adjustment is unilateral (not agreed through MAP or a bilateral APA), the parent generally gets no corresponding deduction, so the group has paid tax twice on the same ₹2 crore. This is the strongest practical argument for pricing correctly in the first place — or for a bilateral route when an adjustment is unavoidable.
Worked example
An Indian captive's return for tax year 2026-27 is assessed in 2029. The TPO adjusts the service markup upward by ₹3.4 crore; the company accepts the order dated 20 December 2029 rather than appeal.
- Primary adjustment ₹3.4 crore > ₹1 crore — section 170 applies.
- Excess money ₹3.4 crore deemed an advance to the parent from the date of the order. Repatriation due within 90 days: by 20 March 2030.
- Option A — repatriate. The parent remits ₹3.4 crore by 20 March 2030. No interest. The receipt is not income. The parent books it as an additional service cost for 2026-27 (its deductibility abroad depends on local law).
- Option B — do nothing. Interest at the prescribed rate (illustratively about 11% to 12% on a rupee balance) is imputed: roughly ₹39 lakh a year added to income, every year, indefinitely.
- Option C — one-time tax. Pay 18% plus surcharge and cess on ₹3.4 crore — about ₹69 lakh — once. Imputed interest stops; no repatriation needed.
Over five years, Option B costs more than Option C in tax alone, before interest-on-interest; Option A is cheapest if the parent can pay.
Common mistakes we see
- Netting the deemed advance against unrelated payables to the parent without checking whether the Rules permit set-off for that trigger.
- Missing that a suo motu adjustment in the return triggers the secondary adjustment — and so does declaring a safe harbour margin above the booked margin.
- Treating the repatriated money as fresh revenue and charging GST or re-computing the markup on it. It is the collection of a deemed advance.
- Letting imputed interest run for years because 'the parent will send it eventually'. The one-time tax option usually caps the cost sooner.
- Forgetting the ₹1 crore test is per tax year per primary adjustment, not cumulative across years.
Frequently asked questions
What is the threshold for a secondary adjustment?
A primary adjustment exceeding ₹1 crore in a tax year. At or below ₹1 crore, section 170 does not apply.
How long do I have to repatriate the excess money?
90 days from the date fixed by the Rules for the relevant trigger — the return due date for a suo motu or safe harbour adjustment, the order date for an accepted assessment adjustment, the APA signing date, or the MAP effect date.
What interest rate is imputed if the money is not repatriated?
A benchmark lending rate plus a prescribed spread, set by the Rules and depending on whether the intercompany balance is in rupees or foreign currency. It is added to income every year until repatriation or payment of the one-time tax.
What is the one-time additional tax?
18% plus applicable surcharge and cess on the un-repatriated excess money, payable at the company's option. Once paid, no further interest is imputed and repatriation is no longer required. It is not deductible and carries no credit.
Does the secondary adjustment apply if I appeal the TPO's order?
Not while the adjustment is under dispute. It applies once the adjustment is accepted or finally upheld.
Is the repatriated amount taxable again in India?
No. It is the recovery of a deemed advance, not income.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
- e-Gazette of India — Finance Act, 2026; Income-tax Rules, 2026; FEMA notifications
Last reviewed on 1 November 2026 by Suchit Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
