International taxation: residence, DTAA and transfer pricing

In short

International taxation decides who India may tax, on what income, and how double taxation is removed when two countries both claim the same income. The chain is always the same: residential status → scope of total income → source rules for a non-resident → treaty relief under a Double Taxation Avoidance Agreement (DTAA) → arm's-length pricing of cross-border dealings between associated enterprises. It is examined in CA Final Paper 4 (International Taxation, Part II) and CA Inter Taxation, and in placement interviews for Big Four and Next Six transfer-pricing and international-tax teams, in-house tax cells of Infosys, TCS, Reliance, Maruti and every Indian subsidiary of a foreign group. Note the law base: the Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026 and renumbered all sections and forms, so quote a provision by name where the new number is not certain; the substantive concepts below are unchanged.

Explained

1. Residential status - the gateway

• Individual - basic conditions: resident if in India for 182 days or more in the previous year, or 60 days or more in the previous year and 365 days or more in the four preceding years.
• Relaxation: the 60-day test is extended to 182 days for an Indian citizen leaving India for employment or as a crew member of an Indian ship; and for an Indian citizen or person of Indian origin (PIO) visiting India.
• Visiting Indian citizen/PIO with high Indian income: if total income other than foreign-source income exceeds ₹15 lakh, the visit threshold is 120 days (with 365 days in four preceding years) instead of 182.
• Deemed resident: an Indian citizen with total income (other than foreign-source income) above ₹15 lakh who is not liable to tax in any other country is deemed resident in India.
• Ordinarily resident / not ordinarily resident (RNOR): a resident individual is not ordinarily resident if non-resident in 9 of the 10 preceding years, or in India for 729 days or less in the 7 preceding years. Deemed residents and 120-day residents are RNOR.
• HUF: resident if control and management of its affairs is situated wholly or partly in India; ordinarily resident depends on the manager's own history.
• Company: resident if it is an Indian company, or if its place of effective management (POEM) - where key management and commercial decisions necessary for the conduct of the business as a whole are in substance made - is in India in that year.
• Firm/AOP/local authority/other person: resident unless control and management is situated wholly outside India.
• Scope of total income:

2. Source rules - when India taxes a non-resident

• Business connection: business income of a non-resident is taxed in India to the extent attributable to operations carried out in India through a business connection. A dependent agent habitually concluding contracts or securing orders creates one; an independent agent acting in the ordinary course generally does not.
• Significant economic presence (SEP): a non-resident has a business connection if transactions in goods, services or property with persons in India exceed the prescribed turnover threshold (notified at ₹2 crore) or it systematically solicits business from or interacts with the prescribed number of users (notified at 3 lakh users). Only income attributable to the SEP is taxed.
• Deemed Indian income: salary for services rendered in India; salary paid by Government to an Indian citizen abroad; dividend paid by an Indian company; interest, royalty and fees for technical services (FTS) payable by Government or by a resident (unless for a business wholly outside India) or by a non-resident for its Indian business/PE; capital gains on assets situated in India.
• Indirect transfer: shares of a foreign company are deemed situated in India if they derive substantially their value (above ₹10 crore of Indian assets and 50% of total asset value) from Indian assets; small shareholders (5% or less with no management rights) are exempt.
• Royalty and FTS: FTS means managerial, technical or consultancy services (including personnel); the "make available" test in several treaties (notably the India-USA and India-UK DTAAs) narrows it to services that transfer technical knowledge enduringly. Many treaties also carry a most-favoured-nation (MFN) clause - the Supreme Court in *Nestle SA* (2023) held a separate notification under section 90 is needed before an MFN clause is operative.
• Presumptive regimes for non-residents: shipping (7.5% of freight), aircraft operation (5%), turnkey construction/civil contracts (10%), oil exploration services (10%), and royalty/FTS of foreign companies taxed at a gross rate.
• Equalisation levy: 6% on online advertisement payments to non-residents was the surviving levy; the 2% levy on e-commerce supply/services was withdrawn from 1 August 2024 and the 6% advertisement levy was withdrawn from 1 April 2025, as India aligns with the OECD/G20 two-pillar solution. Income exempt under the Act because equalisation levy applied continues to be governed by the position for the relevant year.

3. DTAA - structure and relief

• Purpose: avoid double taxation, allocate taxing rights, prevent fiscal evasion, provide certainty and non-discrimination, and give mechanisms for exchange of information and dispute resolution.
• Authority: the Central Government may enter into agreements with other countries and notify them; treaty or Act, whichever is more beneficial to the assessee, applies - except that GAAR, and provisions on a specified territory/agreement override, may still apply. The surcharge-and-cess question: a treaty rate (say 10% on royalty) is applied without adding surcharge and cess; the Act's rate attracts both.
• Models: OECD Model (residence-country biased, used by developed countries), UN Model (more source-country taxation - wider PE, royalty taxation at source, Article 12A for fees for technical services), US Model, and India's own negotiated texts which lean towards the UN Model.
• Methods of relief:
  • Exemption method - income taxed in only one country (full exemption, or exemption with progression).
  • Credit method - income taxed in both, residence country gives credit for tax paid at source; ordinary credit limits it to the residence-country tax on that income (the Indian approach), full credit does not.
  • Tax sparing credit - credit for tax the source country waived as an incentive.
  • Underlying tax credit - credit for tax paid by the company on profits out of which a dividend is paid.
• Bilateral relief flows from a DTAA; unilateral relief is given by domestic law where no DTAA exists (relief at the lower of the Indian rate and the foreign rate on doubly taxed income).
• Foreign Tax Credit (FTC) Rules: credit is available against tax, surcharge and cess (not against interest, fee or penalty); allowed in the year the income is offered to tax; not allowed for a disputed foreign tax until the dispute is settled; credit is the lower of foreign tax and Indian tax on that income, computed source-country-wise and income-wise; Form 67 with evidence of payment must be furnished - it may now be filed on or before the end of the assessment year (or by a belated/updated return), and is a procedural, not fatal, condition.
• Tax Residency Certificate (TRC) from the other country is mandatory to claim treaty benefit, supported by Form 10F (now filed electronically) where the TRC lacks prescribed particulars. Non-residents claiming treaty benefit on Indian income must obtain a PAN or furnish prescribed details.
• Key articles to know: Art. 4 residence and tie-breaker (permanent home → centre of vital interests → habitual abode → nationality → mutual agreement); Art. 5 PE; Art. 7 business profits (only PE-attributable profits); Art. 9 associated enterprises; Art. 10/11/12 dividend, interest, royalty/FTS (source taxation capped); Art. 13 capital gains; Art. 15 dependent personal services (the 183-day rule); Art. 23/24 methods of elimination; Art. 25/26 MAP and exchange of information; Art. 27 assistance in collection.
• Permanent establishment types: fixed place PE (branch, office, factory, workshop, mine); construction/installation PE (beyond the treaty duration, often 6 or 12 months); service PE (furnishing services through personnel beyond a stated period); agency PE (dependent agent); subsidiary is not automatically a PE of its parent. Preparatory or auxiliary activity and a liaison office confined to communication are excluded - *UAE Exchange Centre* and *Formula One* (fixed place PE at the Buddh circuit) are the leading Indian authorities.
• Anti-abuse: the Multilateral Instrument (MLI), in force for India from 1 October 2019, inserts a Principal Purpose Test (PPT) and a revised preamble into covered treaties; GAAR (impermissible avoidance arrangement, threshold tax benefit ₹3 crore) can override a treaty; BEPS Action Plans 1-15 underpin all of this.
• Dispute resolution and certainty: Mutual Agreement Procedure (MAP) under the treaty; Advance Rulings (Board for Advance Rulings); Advance Pricing Agreements (APA) - unilateral, bilateral or multilateral, valid 5 years with rollback up to 4 years; Safe Harbour Rules; and the Dispute Resolution Scheme for small cases.

4. Transfer pricing - the arm's length principle

• Trigger: an international transaction between two or more associated enterprises (AE), at least one of which is a non-resident, must be computed having regard to the arm's length price (ALP). Also applies to a deemed international transaction where a prior agreement exists with an AE of the other party.
• Associated enterprise - participation tests (any one suffices): direct/indirect holding of 26% or more of voting power (including through a common person); advance of a loan of 51% or more of book value of total assets; guarantee of 10% or more of total borrowings; appointment of more than half the board or one or more executive directors; 90% or more of raw materials/consumables supplied by, with influenced prices; goods manufactured are sold to it with influenced prices; control by an individual with his relative; or by the same HUF/its member/relative; or a firm/AOP in which the enterprise holds a 10% interest.
• International transaction covers purchase/sale/lease of tangible or intangible property, provision of services, lending or borrowing money, cost-sharing arrangements, business restructuring (whether or not it affects current-year profit), and any transaction bearing on profits, income, losses or assets.
• Specified Domestic Transaction (SDT): domestic transactions above an aggregate of ₹20 crore in the year - essentially transactions of units claiming profit-linked deductions and specified business transfers - are also tested at ALP. Payments to related persons were removed from the SDT net.
• Methods (no hierarchy; the "most appropriate method" is chosen on facts, availability and reliability of data):
  1. CUP - Comparable Uncontrolled Price: compares price; best for commodities, interest, royalty.
  2. RPM - Resale Price Method: gross margin of a distributor working back from resale price.
  3. CPM - Cost Plus Method: gross mark-up on direct and indirect cost; used for contract manufacturing and services.
  4. PSM - Profit Split Method: splits combined profit where transactions are integrated or unique intangibles exist.
  5. TNMM - Transactional Net Margin Method: net profit margin on an appropriate base (cost, sales, assets); the most used method in India for IT/ITES captives.
  6. Other method - any method taking into account the price charged or would be charged for similar uncontrolled transactions (quotations, valuation reports).
• Comparability factors: functions, assets and risks (FAR analysis), contractual terms, economic circumstances, business strategies, product characteristics. Adjustments for working capital, capacity utilisation, risk and accounting differences.
• Range and arithmetic mean: where 6 or more comparables exist, the ALP is a data set range of the 35th to 65th percentile; if the transaction price falls inside the range, no adjustment, and if it falls outside, the ALP is the median of the data set. Where fewer than 6 comparables exist, the arithmetic mean applies with a tolerance of 1% for wholesale trading and 3% for all other transactions. Multiple-year data (current year plus up to two preceding years) is used for the range.
• No benefit of a downward adjustment: an adjustment that reduces Indian income is not allowed; and no deduction under Chapter VI-A/section 10AA is available on the enhanced income arising from a TP adjustment.
• Secondary adjustment: where a primary adjustment exceeds ₹1 crore (for AY 2017-18 onwards) and is accepted, the excess money must be repatriated within the prescribed time or is treated as a deemed advance carrying imputed interest; a one-time option exists to pay 18% additional tax (plus 12% surcharge) instead.
• Thin capitalisation / interest limitation: interest paid to a non-resident AE (or third-party debt it guarantees) exceeding ₹1 crore is deductible only up to 30% of EBITDA, with carry-forward for 8 years; banks, insurers and specified finance companies are excluded.
• Compliance: Form 3CEB report of an accountant (international transactions and SDTs) by the specified date - 30 days before the return due date, i.e. 31 October for such assessees; documentation maintained for 8 years if aggregate international transactions exceed ₹1 crore (certain intangible/specified transactions above ₹5 crore); Master File - Form 3CEAA Part A by every constituent entity of an international group and Part B where group revenue exceeds ₹500 crore and Indian transactions exceed the prescribed limits, with Form 3CEAB intimation; CbCR - Form 3CEAD where consolidated group revenue exceeds ₹6,400 crore, with Form 3CEAC/3CEAE intimations.
• Penalties: 2% of transaction value for failure to maintain/furnish documentation or for non-reporting of a transaction; ₹1,00,000 for failure to furnish the accountant's report; specified sums for Master File and CbCR defaults; and the general under-reporting/misreporting penalty, which is 200% of tax where a TP adjustment amounts to misreporting.
• Procedure: the Transfer Pricing Officer (TPO) determines ALP on reference by the AO; a draft order goes to the assessee, who may approach the Dispute Resolution Panel (DRP) or accept; appeal lies to the ITAT (and an eligible assessee has an extended time limit for assessment). Safe Harbour Rules prescribe acceptable margins for software development, ITES, KPO, contract R&D, auto components and intra-group loans and guarantees - the thresholds and margins are revised periodically by notification.

5. Other cross-border provisions worth knowing

• Withholding on payments to non-residents: tax must be deducted on any sum chargeable in India at rates in force (Act rate or treaty rate, whichever is beneficial); Form 15CA/15CB accompany remittances; an application may be made for a lower/nil deduction order. Grossing up applies where tax is borne by the payer.
• Non-resident Indians - special regime: investment income and long-term capital gains from specified foreign-exchange assets are taxed at concessional flat rates (20% and 12.5% respectively after the 2024 capital-gains rationalisation), with no deduction/indexation; an NRI may elect to continue the regime after becoming resident.
• Transfer of residence and black money: foreign assets and income of a resident must be reported in Schedule FA/FSI/TR of the return; non-disclosure attracts the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - 30% tax plus penalty up to 300%, and a ₹10 lakh penalty for non-disclosure of a foreign asset.
• Pillar One and Pillar Two: Pillar One reallocates taxing rights over residual profits of the largest groups; Pillar Two imposes a 15% global minimum tax through the income inclusion rule, UTPR and a qualified domestic minimum top-up tax. India has engaged in the Inclusive Framework and withdrew the equalisation levies in that context; it has not enacted the GloBE rules in domestic law - any statement on an Indian Pillar Two charge should be verified against the latest Finance Act.
• IFSC, GIFT City: units in an International Financial Services Centre enjoy a 10-year profit-linked deduction and several exemptions for non-residents transacting through them, and much international-tax advisory work now centres there.
• MAT: under the Finance Act, 2026, MAT is 14% and a final tax - relevant when comparing the effective Indian tax on a foreign company's Indian PE.

Key points

• Residence - decides scope: a resident is taxed on global income, a non-resident only on Indian-source income, an RNOR on Indian income plus foreign business income controlled from India.
• 182/60+365 days - the two basic conditions; 120 days applies to visiting Indian citizens/PIOs with non-foreign income above ₹15 lakh.
• Deemed resident - Indian citizen, non-foreign income above ₹15 lakh, not liable to tax anywhere else; always RNOR.
• POEM - a foreign company becomes resident in India if key management and commercial decisions are in substance made in India.
• Business connection and SEP - the two doors to taxing a non-resident's business income; SEP thresholds are ₹2 crore turnover or 3 lakh users.
• Treaty override - treaty or Act, whichever is more beneficial, but GAAR and the MLI's PPT can still deny the benefit.
• TRC plus Form 10F - no treaty benefit without them; Form 67 is required for foreign tax credit.
• FTC - lower of foreign tax and Indian tax on the same income, computed country-wise and income-wise; no credit for disputed tax.
• PE - fixed place, construction, service and agency; preparatory/auxiliary and a pure liaison office are excluded.
• Arm's length principle - an international transaction between AEs must be priced as between independents.
• 26% voting power - the most used associated-enterprise test; others are loan 51% of assets, guarantee 10% of borrowings, board control, 90% raw-material supply.
• Six methods, no hierarchy - CUP, RPM, CPM, PSM, TNMM and the "other method"; the most appropriate method governs.
• Range - 35th to 65th percentile with 6 or more comparables; otherwise arithmetic mean with 1%/3% tolerance.
• One-way street - no downward TP adjustment, and no Chapter VI-A deduction on income enhanced by an adjustment.
• Form 3CEB - accountant's report, due 30 days before the return due date; documentation kept 8 years.
• APA - 5 years prospective with 4-year rollback; Safe Harbour gives pre-agreed margins; MAP resolves double taxation bilaterally.
• Secondary adjustment - primary adjustment above ₹1 crore must be repatriated or carries deemed interest; 18% one-time tax option.
• Thin capitalisation - AE interest above ₹1 crore limited to 30% of EBITDA, excess carried forward 8 years.

Formulas and examples

Example 1 - Residential status of a visiting NRI. Mr Arun, an Indian citizen employed in Dubai, visits India in PY 2026-27 for 135 days. His stay in the four preceding years totals 400 days. His income from an Indian house property and Indian interest is ₹18,00,000; the rest is Dubai salary.

1. Basic condition 1: 135 < 182 → not satisfied.
2. He is a visiting Indian citizen, but non-foreign-source income ₹18 lakh > ₹15 lakh, so the threshold is 120 days, not 182.
3. 135 ≥ 120 and 400 ≥ 365 → basic condition 2 satisfied → Resident.
4. A 120-day resident is always Not Ordinarily Resident.

Answer: RNOR. His Dubai salary (foreign-source, not from a business controlled from India) is not taxable in India; the ₹18 lakh Indian income is.

Example 2 - Bilateral relief / foreign tax credit. Ms Priya, ROR, has Indian business income ₹12,00,000 and Country X royalty income ₹4,00,000 (gross), on which Country X withheld 25% = ₹1,00,000. The India-X DTAA allows credit. Old regime, no deductions.

1. Total income = 12,00,000 + 4,00,000 = ₹16,00,000.
2. Tax (old slabs): nil to 2.5L = 0; 2.5-5L @5% = 12,500; 5-10L @20% = 1,00,000; 10-16L @30% = 1,80,000 → ₹2,92,500.
3. Add 4% cess = ₹11,700 → total Indian tax = ₹3,04,200.
4. Average rate = 3,04,200 ÷ 16,00,000 = 19.0125%. Foreign rate = 25%.
5. Relief = 4,00,000 × lower of (19.0125%, 25%) = 4,00,000 × 19.0125% = ₹76,050.
6. Net tax payable in India = 3,04,200 − 76,050 = ₹2,28,150. The unrelieved ₹23,950 of Country X tax is not refundable in India.

*Form 67 with proof of foreign tax payment must be filed to claim this relief.*

Example 3 - TNMM adjustment for an IT captive. Delta India provides software development services only to its US parent. Operating cost ₹50 crore, revenue ₹56 crore.

1. Tested-party margin (OP/OC) = (56 − 50)/50 = 6/50 = 12%.
2. Comparables' OP/OC: 11%, 13%, 14%, 16%, 18%, 21% → n = 6, so the range applies.
3. 35th percentile: 35% of 6 = 2.1 → the value at the 3rd place from the bottom = 14%. 65th percentile: 65% of 6 = 3.9 → value at the 4th place = 16%. Range = 14% to 16%.
4. 12% is below the range → the ALP is the median of the data set: 50% of 6 = 3, a whole number, so the median is the mean of the 3rd and 4th values = (14 + 16)/2 = 15%.
5. Arm's length revenue = 50 × 1.15 = ₹57.5 crore.
6. TP adjustment = 57.5 − 56 = ₹1.5 crore, added to Delta India's income. No deduction under section 10AA/Chapter VI-A is available on this ₹1.5 crore.

Example 4 - Royalty to a non-resident: treaty versus Act. An Indian company pays royalty of ₹1,00,00,000 to a German company with no PE in India. The Act's rate for royalty of a foreign company is 20% (plus surcharge and cess); the India-Germany DTAA caps royalty tax at 10%.

1. Act: 20% + 4% cess (ignore surcharge, income ≤ ₹1 crore) = 20.8% → ₹20,80,000.
2. Treaty: 10%, with no surcharge or cess added → ₹10,00,000.
3. Beneficial provision applies → withhold ₹10,00,000, provided the German company furnishes a TRC, Form 10F and PAN (or prescribed details).
4. Grossing up: if the contract is net-of-tax at ₹1 crore, gross = 1,00,00,000 ÷ (1 − 0.10) = ₹1,11,11,111, tax = ₹11,11,111.

Example 5 - Thin capitalisation. Zeta India has EBITDA of ₹40 crore and pays interest of ₹18 crore to its Singapore parent (an AE).

1. Interest exceeds ₹1 crore → the limitation applies.
2. Ceiling = 30% × 40 = ₹12 crore.
3. Excess interest disallowed = 18 − 12 = ₹6 crore, added back this year.
4. The ₹6 crore is carried forward for up to 8 assessment years and allowed against future headroom.

Where it is used

• Big Four and Next Six transfer-pricing teams (Deloitte, PwC, EY, KPMG, Grant Thornton, BDO, Nangia, Dhruva): benchmarking studies on Prowess/Capitaline, Form 3CEB signing, TP assessments, APA and MAP filings.
• Captive GCCs and IT/ITES exporters (Infosys, TCS, Wipro, Cognizant India, and the 1,700-plus global capability centres): cost-plus TNMM pricing of services to the overseas parent, safe harbour elections, software-export withholding.
• Indian subsidiaries of MNCs (Maruti Suzuki, Hyundai India, Samsung India, Nestlé India): royalty and brand-fee payments, intra-group loans and guarantees, management-fee cost allocations, Master File and CbCR filings.
• Indian outbound groups (Tata, Reliance, Sun Pharma, Bharti Airtel): foreign tax credit on overseas branch and subsidiary income, PE risk for project offices abroad, treaty-based withholding on inbound royalties.
• Banking, treasury and remittance desks: Form 15CA/15CB certification, section 195 withholding on imports of services, TRC verification before releasing payments.
• Roles: International Tax Associate/Manager, Transfer Pricing Analyst, Tax Litigation (DRP/ITAT) support, in-house direct-tax compliance, GIFT-City/IFSC structuring, and tax technology teams building TP documentation tools.

Interview questions

• Q: How do you determine the residential status of a company in India? A: It is resident if it is an Indian company or if its place of effective management - where key management and commercial decisions for the business as a whole are in substance made - is in India during the year.
• Q: What is the difference between a resident and ordinarily resident and an RNOR? A: Both are residents, but an RNOR escapes tax on foreign income other than income from a business controlled from or a profession set up in India; the test is non-residence in 9 of 10 preceding years or stay of 729 days or less in the 7 preceding years.
• Q: If a DTAA rate is higher than the Act's rate, which applies? A: The provision more beneficial to the assessee - so the Act's lower rate applies; a treaty cannot be used to worsen the taxpayer's position.
• Q: Why is surcharge not added to a treaty rate? A: The treaty caps the total tax on that income at the specified percentage, and "tax" in the treaty includes surcharge and cess, so the capped rate is applied as is.
• Q: What is a service PE, and how is it different from FTS? A: A service PE arises when a non-resident furnishes services in India through personnel for more than the treaty-specified period, making profits attributable to it taxable on a net basis under Article 7; FTS is taxed on a gross basis at a treaty-capped rate without a PE.
• Q: Does a subsidiary automatically create a PE of its foreign parent in India? A: No - the treaties expressly provide that control alone does not make a subsidiary a PE; a PE arises only if the subsidiary's premises are at the parent's disposal or it acts as a dependent agent.
• Q: What is the "most appropriate method" and is there a hierarchy of TP methods? A: There is no hierarchy in Indian law; the most appropriate method is selected on the nature and class of transaction, functions performed, availability and reliability of comparable data, and the degree of comparability adjustment needed.
• Q: When is the 35th-65th percentile range used instead of the arithmetic mean? A: When the data set has six or more comparables; with fewer than six, the arithmetic mean is used with a tolerance of 1% for wholesale trading and 3% otherwise.
• Q: A TP adjustment increases the income of a unit claiming a section 10AA deduction - does the deduction increase too? A: No, the law expressly bars any Chapter VI-A or section 10AA deduction on the income enhanced by a transfer-pricing adjustment.
• Q: What is a secondary adjustment and when does it bite? A: Where an accepted primary adjustment exceeds ₹1 crore, the excess money must be repatriated to India within the prescribed period, failing which it is treated as a deemed advance attracting imputed interest, unless the taxpayer opts to pay a one-time additional tax of 18% plus surcharge.
• Q: What documents must a non-resident furnish to claim treaty benefit? A: A Tax Residency Certificate from its home country, Form 10F electronically where the TRC lacks the prescribed particulars, a declaration of no PE where relevant, and a PAN or the prescribed alternative details.
• Q: What is the difference between an APA and a MAP? A: An APA is a forward-looking agreement with the CBDT on the pricing methodology for up to five years with a four-year rollback; MAP is a bilateral negotiation between competent authorities to resolve double taxation that has already arisen.
• Q: What is the current status of India's equalisation levy? A: The 2% e-commerce equalisation levy was withdrawn from 1 August 2024 and the 6% online-advertisement levy from 1 April 2025, in step with the OECD two-pillar process.

Common mistakes

• Counting the day of arrival or departure wrongly - both the day of entry into and the day of exit from India are counted as days of stay in India.
• Applying the 120-day test to every NRI; it applies only to an Indian citizen or PIO visiting India whose non-foreign-source income exceeds ₹15 lakh.
• Treating an RNOR as a non-resident - foreign business income controlled from India is taxable for an RNOR.
• Adding surcharge and cess on top of a DTAA-capped rate, or claiming the treaty rate without a TRC.
• Computing foreign tax credit as the full foreign tax instead of the lower of foreign and Indian tax on that income, or forgetting Form 67.
• Confusing the arithmetic mean with the range, or applying the 3% tolerance when six or more comparables exist.
• Making a downward transfer-pricing adjustment to reduce Indian income - not permitted.
• Using the 26% associated-enterprise test alone and missing the loan, guarantee, board-control and raw-material tests, or forgetting that both parties can be non-residents only if one of them is taxable in India.
• Quoting 1961-Act section numbers (90, 92C, 195, 9(1)(vii)) as current law - the Income-tax Act, 2025 has renumbered every provision from 1 April 2026; name the provision when the new number is uncertain.

Related topics

Corporate tax basics · TDS and tax filing basics · Income tax basics · The Income-tax Act 2025: transition from the 1961 Act · Capital gains · Income tax assessments, notices, appeals and faceless proceedings