An intercompany services agreement is a related-party contract under section 188 of the Companies Act, 2013. It requires approval of the board by resolution at a meeting, with interested directors disclosing under section 184 and not participating; prior shareholder approval by ordinary resolution is also needed where the contract exceeds the thresholds in Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014 — for services, 10% of turnover — unless the transaction is in the ordinary course of business on an arm's length basis, in which case section 188 approvals do not apply at all. The contract is entered in the register under section 189 and disclosed in the Board's report (Form AOC-2 for non-arm's length contracts). Stamp duty is a state matter: agreements attract a fixed duty under the relevant state Stamp Act, and an agreement executed outside India must be stamped within three months of first being received in India.
Key facts
| Provision | Old reference (to 31 Mar 2026) | New reference (from 1 Apr 2026) | Rate / threshold | Timing | Form |
|---|---|---|---|---|---|
| Related party transactions — approval | s. 188(1) Companies Act, 2013 | Unchanged | Board resolution at a meeting; shareholders' ordinary resolution above thresholds | Before entering the contract (ratification within 3 months possible) | Board / general meeting resolutions |
| Thresholds for shareholder approval | Rule 15(3), Companies (Meetings of Board and its Powers) Rules, 2014 | Unchanged | Availing or rendering services: > 10% of turnover; sale/purchase of goods: > 10% of turnover; leasing of property: > 10% of turnover | — | — |
| Arm's length / ordinary course exemption | Third proviso to s. 188(1) | Unchanged | Section 188 approvals not required | — | Board still records basis |
| Holding–WOS exemption from shareholder approval | Fourth proviso to s. 188(1) | Unchanged | WOS whose accounts are consolidated and placed before shareholders | — | — |
| Director's disclosure of interest | s. 184; Form MBP-1 | Unchanged | — | First board meeting of the year and on change | MBP-1 |
| Register of contracts | s. 189; Form MBP-4 | Unchanged | — | Entered and placed at next board meeting | MBP-4 |
| Board's report disclosure | s. 134(3)(h); Form AOC-2 | Unchanged | Contracts not at arm's length; material arm's length contracts | Annual | AOC-2 |
| Stamp duty on agreements | Indian Stamp Act, 1899 / state Stamp Acts (e.g. Karnataka Stamp Act, 1957, Article 5) | Unchanged | Fixed duty on agreements not otherwise provided for (state-specific) | On execution; within 3 months of receipt in India if executed abroad (s. 18, Indian Stamp Act) | e-stamp |
Section 188 in practice for a foreign-owned subsidiary
The foreign parent is a related party of its Indian subsidiary (holding company; and typically through common directors). Any contract for "availing or rendering of any services" between them is within section 188(1). The approval route depends on two tests:
- Is it in the ordinary course of business and on an arm's length basis? If yes, section 188 approvals are not required (third proviso). For an Indian captive whose entire business is providing services to the group at a benchmarked or safe-harbour markup, the answer is usually yes — but the board should record that conclusion and the basis for it (the benchmarking or safe-harbour position) in the minutes, because the Registrar and the secretarial auditor will ask.
- If not (or if the board prefers to approve anyway), does it exceed the Rule 15 threshold? For services, a contract exceeding 10% of the company's turnover (per the last audited financial statements) requires prior shareholder approval by ordinary resolution in addition to board approval. For a captive, the intercompany agreement will always exceed 10% of turnover — it is the turnover. The fourth proviso exempts transactions between a holding company and its wholly owned subsidiary whose accounts are consolidated with the holding company and placed before shareholders for approval; whether a foreign parent's consolidation satisfies this is debated, so most foreign-owned subsidiaries rely on the arm's length / ordinary course route and obtain a shareholder resolution as belt-and-braces where the shareholder is a single parent and the resolution costs nothing.
Whichever route is taken, the board resolution should name the parties, describe the services, state the pricing basis (cost plus X%, reviewed annually), the term and the authorised signatory, and note that interested directors disclosed their interest and did not vote. In a two-director company where both directors are interested, the matter must go to the shareholders.
Disclosures that follow
- MBP-1 — each director's general notice of interest, at the first board meeting of the financial year and whenever it changes.
- Section 189 register (MBP-4) — the contract is entered and the register placed before the next board meeting and signed by all directors present.
- AOC-2 annexed to the Board's report — mandatory for contracts not at arm's length; material arm's length contracts are also disclosed. Most companies disclose the intercompany agreement here in any case.
- Financial statements — related-party disclosures under Ind AS 24 or AS 18, which the transfer pricing report (Form 48) must reconcile to.
Stamp duty
Stamp duty is levied by the state where the instrument is executed or first received. An intercompany services agreement is generally an "agreement not otherwise provided for", attracting a modest fixed duty under the applicable state schedule (in Karnataka, Article 5 of the Karnataka Stamp Act, 1957; the amount is set by the state and revised from time to time — check the current schedule). Two rules matter for cross-border execution:
- Executed abroad: under section 18 of the Indian Stamp Act, an instrument executed outside India and relating to a matter in India may be stamped within three months after it is first received in India. Pay the duty on receipt; a copy printed and signed in India counts as receipt.
- Unstamped instruments are inadmissible in evidence until the duty and penalty are paid. The tax department does not refuse an unstamped agreement, but an unstamped contract weakens the company's position in any dispute with the counterparty or in insolvency.
E-stamping is available in most states and is the practical route; some states require the e-stamp certificate to be affixed as the first page.
Signing
- The Indian signatory must be authorised by the board resolution; the foreign signatory's authority is governed by the parent's constitution.
- Electronic signatures are valid in India under the Information Technology Act, 2000; signatures through widely used e-signing platforms are accepted in practice as evidence of execution, although only Aadhaar-based eSign and DSC-based signatures are "electronic signatures" within the Act's schedule. Complete the stamping regardless of signing method.
- Counterparts clause, date of execution and stated effective date; keep the executed copy with the board minutes and the transfer pricing file.
Worked example
An Indian private company (two directors, both nominees of the French parent) is about to sign a services agreement with the parent at cost plus 15.5%. Steps taken: (1) both directors file MBP-1 noting their interest in the parent; (2) because both are interested, the agreement is placed before the sole shareholder (the parent) which passes an ordinary resolution approving it; the board meeting records the shareholder approval, the arm's length basis (safe harbour election) and authorises one director to sign; (3) the agreement is executed in Paris by the parent and in Bengaluru by the Indian director; the Indian copy is e-stamped under the Karnataka Stamp Act on the day of receipt; (4) the contract is entered in the MBP-4 register; (5) AOC-2 is annexed to the next Board's report describing the contract; (6) the executed, stamped agreement is filed in the Rule 84 local file and referenced in Form 48.
Common mistakes we see
- Treating the intercompany agreement as a tax document and never putting it before the board.
- Relying on the holding–WOS exemption without checking whether the foreign parent's consolidation meets the proviso; the safer footing is the arm's length ordinary-course route, minuted.
- In a two-director subsidiary where both directors are interested, approving at board level only. The matter must go to the shareholder.
- Executing abroad and never stamping in India, then discovering the document is inadmissible when it matters.
- Approving a framework MSA but never approving the pricing schedule or SOWs that actually fix the consideration.
- Leaving the contract out of the section 189 register and AOC-2 because 'it is routine'.
Frequently asked questions
Is shareholder approval needed for an intercompany services agreement?
Not if the contract is in the ordinary course of business on an arm's length basis — the third proviso to section 188(1) removes the need for section 188 approvals. Otherwise, yes where the contract exceeds 10% of turnover under Rule 15. Many foreign-owned subsidiaries obtain the parent's ordinary resolution anyway, since the parent is the sole shareholder.
Can the interested directors vote?
No. Under section 184 and 188 interested directors disclose and do not participate. If every director is interested, the matter goes to the shareholders.
Does arm's length under section 188 mean the same as transfer pricing arm's length?
The Companies Act defines it as a transaction conducted as if between unrelated parties, free of conflict of interest. A transfer pricing benchmarking or safe harbour position is the natural evidence for the board's conclusion.
How much stamp duty applies?
A fixed amount set by the state Stamp Act for agreements not otherwise provided for; states revise these periodically. Check the current schedule of the state where the agreement is executed or first received.
We signed through an e-signature platform. Is that valid?
Yes as evidence of execution. Complete the stamp duty in India within three months of receipt. For instruments you may need to rely on in court, a DSC or Aadhaar eSign gives the stronger statutory footing.
Can the board ratify an agreement already in effect?
Section 188 allows ratification within three months of the contract. Beyond that, the contract is voidable at the board's option and the directors may be liable to indemnify the company. Approve first wherever possible.
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.
- Companies Act, 2013 and rules — Ministry of Corporate Affairs
- e-Gazette of India — Finance Act, 2026; Income-tax Rules, 2026; FEMA notifications
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
Last reviewed on 1 November 2026 by Vidushi 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.
