Section 92CE: Secondary Adjustment in Transfer Pricing

A transfer pricing adjustment can increase taxable income without moving the corresponding funds back to India. Secondary adjustment rules address that mismatch. This guide explains when the obligation arises, how excess money is treated, and the choice to pay additional income-tax instead of repatriating the balance.

What is a secondary adjustment?

Under Section 92CE(3)(v), a secondary adjustment is an adjustment in the books of the assessee and its associated enterprise so that the actual allocation of profits reflects the transfer price resulting from the primary adjustment. Its purpose is to eliminate the mismatch between the cash position and the profit recognised for tax purposes.

A primary adjustment, defined in Section 92CE(3)(iv), is a transfer price adjustment based on the arm's length principle that increases total income or reduces a loss. Excess money is the difference between the arm's length price determined through that adjustment and the price actually charged for the international transaction. Associated enterprise and arm's length price take their meanings from Section 92A and Section 92F, respectively.

Section 92CE(1): When is secondary adjustment required?

Subject to the statutory exclusions, Section 92CE applies when the primary transfer pricing adjustment arises in any of the following ways:

1. The assessee makes the adjustment voluntarily in its income-tax return.
2. The Assessing Officer makes the adjustment and the assessee accepts it.
3. The adjustment is determined under an advance pricing agreement (Section 92CC) entered into on or after 1 April 2017.
4. The adjustment is made under safe harbour rules (Section 92CB).
5. The adjustment arises from a mutual agreement procedure (MAP) under a tax treaty covered by Section 90 or 90A.

Threshold and historical exclusions

For Section 92CE of the 1961 Act, the secondary adjustment requirement does not apply if either the primary adjustment for the previous year does not exceed Rs. 1 crore, or the adjustment relates to assessment year 2016-17 or an earlier assessment year. The Finance (No. 2) Act, 2019 changed the original conjunction from and to or, retrospectively from 1 April 2018. Taxes paid under the earlier wording are not refundable solely because of that amendment.

Accordingly, an adjustment of exactly Rs. 1 crore is not below the threshold; other conditions and the applicable assessment year must still be examined.

Section 92CE(2): Repatriation and deemed advance

Where a qualifying primary adjustment increases income or reduces loss, the resulting excess money (or the unrepatriated part) held by an associated enterprise must be brought back to India within the prescribed period. Rule 10CB governs the relevant timing and interest computation. If the amount is not repatriated within that period, it is treated as an advance by the Indian assessee to the associated enterprise, and interest is computed under the prescribed rule.

The 2019 amendment clarified that the amount may be repatriated from any non-resident associated enterprise of the assessee, rather than necessarily from the enterprise involved in the original transaction. The applicable starting date and interest rate under Rule 10CB depend on the nature and currency of the transaction and the circumstances of the adjustment.

Sections 92CE(2A) to (2D): Additional income-tax option

If excess money is not repatriated on time, Section 92CE(2A) permits the assessee to elect to pay additional income-tax at 18% on the unrepatriated amount or relevant part. Applicable surcharge and cess must be considered under the governing finance legislation. This is an alternative to continuing the secondary adjustment obligation; it is not a waiver of interest already accruing before payment.

• Section 92CE(2B): The additional tax is final in respect of the amount covered; no further tax credit is available for that payment.
• Section 92CE(2C): No deduction is allowed for the amount on which the additional tax is paid.
• Section 92CE(2D): Once the additional tax is paid, secondary adjustment and deemed-advance interest are not required from the date of payment.

Section 170 of the Income-tax Act, 2025

Section 170 carries forward the secondary adjustment framework in the new legislation effective from 1 April 2026. Its subsection (1) refers to primary adjustments of Rs. 1 crore or more arising from voluntary adjustments, accepted assessments, APAs, safe harbour rules or treaty MAP resolutions. It also addresses excess money, deemed advances, interest and an additional tax election. Read the new section directly for the precise conditions and any applicable transitional provisions; do not apply old section numbers automatically to tax years governed by the 2025 Act.

Illustrative example

An Indian company reports an international service charge of Rs. 4 crore to a foreign associated enterprise. A qualifying, accepted primary adjustment increases the arm's length charge to Rs. 5.5 crore. The Rs. 1.5 crore difference may constitute excess money. Assuming the transaction falls within Section 92CE and no exclusion applies, the company must examine the prescribed repatriation period, deemed-advance interest and, if the amount remains abroad, the additional tax election. This is an illustration, not a computation of the final tax or interest liability.

Compliance checklist

1. Identify the assessment year or tax year and governing Act.
2. Confirm the type, date and acceptance status of the primary adjustment.
3. Check the Rs. 1 crore threshold and any historical exclusion.
4. Reconcile intercompany balances and determine the excess money.
5. Apply the prescribed repatriation deadline and interest rules.
6. Document any election to pay additional income-tax and its payment date.
7. Maintain transfer pricing records under Section 92D and reporting records under Section 92E, as applicable.

Official law and guidance

• Income Tax Department: Section 92CE, Income-tax Act, 1961
• Income Tax Department: Income-tax Act, 2025 (Section 170)
• Income Tax Department: Transfer pricing guidance and secondary adjustments
• Union Budget 2019: Memorandum explaining amendments to Section 92CE
• CBDT Circular 19/2024: Transfer pricing secondary adjustment clarification

Frequently asked questions

Does Section 92CE apply to a primary adjustment of Rs. 80 lakh?

Under the 1961 Act, no: the provision excludes primary adjustments not exceeding Rs. 1 crore. Other transfer pricing requirements may still apply.

Can an assessee pay tax instead of repatriating excess money?

Yes. Subject to the statutory conditions, Section 92CE(2A) allows an election to pay additional income-tax of 18% on the unrepatriated amount. Interest up to the payment date and applicable surcharge and cess require separate consideration.

What is the corresponding provision in the 2025 Act?

Section 170 of the Income-tax Act, 2025 addresses secondary adjustments for tax years governed by the new legislation.

Updated: 26 October 2026. This article provides general legal information. Check the governing assessment year, statutory text, applicable rules and notifications before taking a filing position.