Indian Income Tax Law | Transfer Pricing
Meaning of Associated Enterprise: Section 92A and Section 162
An associated enterprise (AE) is an enterprise linked to another through specified participation in management, control or capital. The classification determines when Indian transfer pricing provisions may apply to cross-border transactions and certain specified domestic transactions.
1. Definition under Section 92A(1) of the Income-tax Act, 1961
For the purposes of Section 92A and Sections 92, 92B, 92C, 92D, 92E and 92F, an associated enterprise, in relation to another enterprise, means an enterprise which:
- Section 92A(1)(a): participates directly, indirectly or through one or more intermediaries in the management, control or capital of the other enterprise; or
- Section 92A(1)(b): has the same person or persons participating directly, indirectly or through intermediaries in the management, control or capital of both enterprises.
The provision covers both direct relationships (such as a parent and subsidiary) and common-control relationships (such as companies with a common shareholder). The specific deeming tests in Section 92A(2) must also be considered.
2. When are two enterprises deemed associated under Section 92A(2)?
Two enterprises are deemed associated if any of the following statutory relationships exists at any time during the relevant previous year. The thresholds below are important, but the complete facts and statutory language control the result.
| Provision | Relationship and legal test |
|---|---|
| 92A(2)(a) | 26% voting power One enterprise directly or indirectly holds at least 26% of voting power in the other. |
| 92A(2)(b) | Common 26% voting power The same person or enterprise holds at least 26% voting power in each enterprise. |
| 92A(2)(c) | 51% asset-value loan A loan advanced by one enterprise is at least 51% of the book value of the other enterprise's total assets. |
| 92A(2)(d) | 10% borrowing guarantee One enterprise guarantees at least 10% of the other enterprise's total borrowings. |
| 92A(2)(e) | Board appointments by the other enterprise The other enterprise appoints more than half the board or at least one executive director or executive board member. |
| 92A(2)(f) | Common board appointments The same person or persons appoint more than half the board or at least one executive director or executive board member of each enterprise. |
| 92A(2)(g) | Dependence on intellectual property The business or manufacturing is wholly dependent on specified know-how, intellectual property or commercial rights owned or exclusively held by the other enterprise. |
| 92A(2)(h) | 90% raw-material supply At least 90% of required raw materials and consumables are supplied by the other enterprise or its nominees, with prices and conditions influenced by it. |
| 92A(2)(i) | Influenced sales arrangements Manufactured or processed goods are sold to the other enterprise or its nominees and sale prices or conditions are influenced by it; no fixed sales-percentage threshold is specified. |
| 92A(2)(j) | Individual and relatives One enterprise is controlled by an individual and the other by that individual, a relative or both jointly. |
| 92A(2)(k) | HUF and relatives One enterprise is controlled by a Hindu undivided family and the other by an HUF member, a relative of a member or both jointly. |
| 92A(2)(l) | 10% interest in firm/AOP/BOI Where one enterprise is a firm, association of persons or body of individuals, the other holds at least 10% interest in it. |
| 92A(2)(m) | Prescribed mutual interest The enterprises have a relationship of mutual interest of a prescribed kind. |
The above table explains the thirteen tests in Section 92A(2)(a) to (m) of the 1961 Act. Refer to the statutory text for precise application.
3. Section 162 of the Income-tax Act, 2025
Section 162 is titled Meaning of associated enterprise. It consolidates the relationship tests within its subsection (1), including voting rights, loans, guarantees, appointments, intellectual-property dependence, supply and sales relationships, individual and HUF control, ownership interests and prescribed mutual-interest relationships.
Section 162(2) additionally identifies certain relationships relevant to specified domestic transactions, including other units or undertakings of the assessee and specified other persons, subject to the provisions referred to in that subsection. Accordingly, readers should not assume the 2025 Act is a word-for-word reproduction of Section 92A.
Read the official Income-tax Act, 2025 (PDF) and the Income Tax Department section correspondence.
4. Practical examples of associated enterprises
Example 1: Shareholding
An overseas company holds 30% of the voting power of an Indian company. The enterprises satisfy the 26% voting-power criterion under Section 92A(2)(a).
Example 2: Common ownership
A holding company owns 35% voting power in Company A and 28% in Company B. The two companies satisfy the common-shareholding test in Section 92A(2)(b).
Example 3: Financing
A company advances a loan of Rs. 60 crore to another enterprise whose total assets have a book value of Rs. 100 crore. The loan represents 60% of those assets, exceeding the 51% threshold under Section 92A(2)(c).
Example 4: Borrowing guarantee
One enterprise guarantees Rs. 12 crore of another enterprise's total borrowings of Rs. 100 crore. The guarantee equals 12% and meets the 10% threshold under Section 92A(2)(d).
5. Consequences for transfer pricing compliance
Associated enterprise status is an important first step, but it does not alone establish that every transaction requires an arm's length adjustment. The nature of the transaction and the applicable international or specified domestic transaction provisions must also be tested.
- Arm's length principle: Section 92 of the 1961 Act governs computation of income from qualifying transactions by reference to an arm's length price.
- Transaction definitions: Sections 92B and 92BA define international transactions and specified domestic transactions.
- Pricing methods: Section 92C addresses determination of the arm's length price.
- Documentation and reporting: Sections 92D and 92E prescribe applicable recordkeeping and accountant-report requirements.
Under the 2025 Act, the corresponding provisions are Sections 161, 163, 164, 165, 171 and 172 respectively. Reporting obligations, thresholds, rules and deadlines must be checked for the relevant tax year.
6. Official statutory references
- Income Tax Department: Section 92A, meaning of associated enterprise
- Income-tax Act, 1961 as amended by Finance Act, 2025 (official PDF)
- Income-tax Act, 2025 (official PDF)
- Income Tax Department: Transfer pricing guidance
7. Frequently asked questions
What is an associated enterprise under Section 92A?
An enterprise connected to another through management, control or capital, including relationships deemed to be associated under the specified statutory criteria.
Does 26% ownership make companies associated enterprises?
Yes. Direct or indirect holding of at least 26% voting power in the other enterprise, or common holding of at least 26% in both, meets the relevant statutory tests.
Does every related-party transaction require transfer pricing reporting?
Not automatically. The transaction must satisfy the applicable international transaction or specified domestic transaction provisions and relevant reporting conditions.
What law applies from 1 April 2026?
Section 162 of the Income-tax Act, 2025 applies under the new framework; Section 92A of the 1961 Act remains relevant to earlier periods and transitional matters.
This article is a general explanation of the statutory provisions, not a substitute for reviewing the applicable Act, rules, notifications and facts of a particular transaction.