Sections 163-164 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 163 and 164 say which transactions are caught by transfer pricing under Chapter X. Section 163 defines an international transaction as a transaction between associated enterprises, at least one of which is a non-resident. Section 164 defines a specified domestic transaction as a listed domestic transaction that is not an international transaction, once the aggregate in a tax year exceeds twenty crore rupees. This article reads both as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
An international transaction is a transaction between two or more associated enterprises, one of which is necessarily a non-resident, and it includes sales and leases of property, financing, services, restructuring, cost-sharing arrangements and any other transaction having a bearing on profits, income, losses or assets. A specified domestic transaction is one of the transactions listed in section 164(a) to (f), where the aggregate entered into in a tax year exceeds twenty crore rupees.
Scope and the amendment by the Finance Act, 2026
Both sections apply "for the purposes of this Chapter", that is Chapter X. Section 164 was amended by section 51 of the Finance Act, 2026: the words "or section 144" were omitted from clause (d), with effect from 1 April 2026. The Act came into force on the 1st April, 2026 (section 1(3)), save as otherwise provided. Check later amendments, rules and notifications before relying on this article.
Who counts as an associated enterprise is set out in section 162; the transfer pricing rule is in section 161. For the Chapter overview, see Chapter X of the Income-tax Act, 2025. If a group of companies needs these definitions applied to its own payments, our tax planning advisory team can help.
Section 163(1): what is an international transaction
An international transaction means a transaction between two or more associated enterprises, one of which is necessarily a non-resident, and includes:
| Clause | Description |
|---|---|
| (a) | the purchase, sale, transfer, lease or use of tangible property, including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing |
| (b) | the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design, or any other business or commercial rights of similar nature |
| (c) | capital financing, lending or borrowing of money, including (i) any type of long-term or short-term borrowing, lending or guarantee, (ii) purchase or sale of marketable securities, or (iii) any type of advance, payment, deferred payment, receivable or other debt arising in the course of business |
| (d) | provision of services, including market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service |
| (e) | a transaction of business restructuring or reorganisation entered into by an enterprise with an associated enterprise, irrespective of whether it has any bearing on profit, income, losses or assets at the time or any future date |
| (f) | a mutual agreement or arrangement between associated enterprises for the allocation or apportionment of, or contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of them |
| (g) | any other transaction having a bearing on the profits, income, losses or assets of such enterprises |
The list is inclusive: "includes" means the seven items are examples within the wider meaning, and clause (g) is a catch-all. Clause (e) is notable because restructuring is covered even if it has no bearing on profit, income, losses or assets at the time of the transaction or later.
Section 163(2): a transaction with an unrelated "other person"
A transaction entered into by an enterprise with a person who is not an associated enterprise (the "other person") is deemed, for sub-section (1), to be an international transaction between two associated enterprises, if:
- (a) there exists a prior agreement in relation to the relevant transaction between that other person and the associated enterprise; or
- (b) the terms of the relevant transaction are determined, in substance, between that other person and the associated enterprise,
and the enterprise, or the associated enterprise, or both of them are non-residents, irrespective of whether the other person is a non-resident or not.
Section 163(3): intangible property
The expression "intangible property" includes the following:
- (a) marketing related intangible assets, such as trademarks, trade names, brand names, logos;
- (b) technology related, such as process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how;
- (c) artistic related, such as literary works and copyrights, musical compositions, maps, engravings;
- (d) data processing related, such as proprietary computer software, software copyrights, automated databases, integrated circuit masks and masters;
- (e) engineering related, such as industrial design, product patents, trade secrets, engineering drawing and schematics, blueprints, proprietary documentation;
- (f) customer related, such as customer lists, contracts, relationships, open purchase orders;
- (g) contract related, such as favourable supplier contracts, licence agreements, franchise agreements, non-compete agreements;
- (h) human capital related, such as a trained and organised work force, employment agreements, union contracts;
- (i) location related, such as leasehold interest, mineral exploitation rights, easements, air rights, water rights;
- (j) goodwill related, such as institutional goodwill, professional practice goodwill, personal goodwill of a professional, celebrity goodwill, general business going concern value;
- (k) methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists or technical data; and
- (l) any other similar item that derives its value from its intellectual content rather than its physical attributes.
Section 164: specified domestic transaction
For the purposes of Chapter X, a "specified domestic transaction", in the case of an assessee, means any of the following transactions (not being an international transaction):
| Clause | Transaction |
|---|---|
| (a) | any transaction referred to in section 122 |
| (b) | any transfer of goods or services referred to in section 140(9) |
| (c) | any business transacted between the assessee and another person as referred to in section 140(13) |
| (d) | any transaction referred to in any other section under Chapter VIII, to which the provisions of section 140(9) or (13) of this Act or section 80-IA(8) or (10) of the Income-tax Act, 1961 (43 of 1961) are applicable |
| (e) | any business transacted between the persons referred to in section 205(4) |
| (f) | any other transaction as may be prescribed |
The list applies "where the aggregate of such transactions entered into by the assessee in a tax year exceeds a sum of twenty crore rupees". The test is on the aggregate for the tax year, and it applies to the transactions together; one transaction below the figure does not take a transaction out if the total exceeds it. The reference to the 1961 Act in clause (d) is the Act's own and nothing is added to it. The Finance Act, 2026 omitted the words "or section 144" from clause (d). Clause (f) leaves further transactions to the Income-tax Rules, 2026; see our rule-wise guides.
Sections 122, 140 and 205 are named in clauses (a) to (c) and (e). For section 122, see our Chapter VIII gateway post.
A worked example
Names and amounts are invented; the twenty crore rupee figure is as printed.
Zenith Components Private Limited, resident in India, sells machinery parts to its parent, a company resident outside India, and also pays it a fee for technical service. Both are associated enterprises under section 162, and one is a non-resident. The sale is within clause (a) of section 163(1) (tangible property) and the fee is within clause (d) (services). Both are international transactions; the Rs. 20 crore aggregate in section 164 does not matter for them.
Separately, Zenith's home-market unit sells goods to another Indian unit of the same assessee in a case to which section 140(9) applies. This is not an international transaction. It can be a specified domestic transaction under section 164(b) only if the aggregate of such transactions entered into by Zenith in the tax year exceeds twenty crore rupees. If the total is Rs. 12 crore, section 164 does not apply; if it is Rs. 22 crore, it does.
Need help with transfer pricing definitions?
Classifying a payment as an international transaction or a specified domestic transaction decides which later steps apply. Our tax planning advisory service can review your group transactions against sections 163 and 164 before the year closes.
Key takeaways
- An international transaction needs two or more associated enterprises and at least one non-resident.
- The list in section 163(1) is inclusive, and clause (g) covers any other transaction having a bearing on profits, income, losses or assets.
- A transaction with an unrelated person is deemed an international transaction in the two cases in section 163(2).
- Intangible property is defined widely in section 163(3).
- A specified domestic transaction needs one of the listed categories and an aggregate above twenty crore rupees in the tax year.
Read next
- Section 162: meaning of associated enterprise
- Section 165: determination of arm's length price
- Section 161: transfer pricing
- Section 166: reference to the Transfer Pricing Officer
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.