Section 170 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.
Section 170 deals with what happens after a transfer price is adjusted upwards. Where the primary adjustment is one crore rupees or more, the assessee must make a secondary adjustment: the excess money left with the associated enterprise is treated as an advance, carrying interest, unless it is brought back within the prescribed time or the assessee chooses to pay additional income-tax at 18%. This article reads it as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
A secondary adjustment is required in every case where the primary adjustment is one crore rupees or more in one of five listed situations. If the excess money is not repatriated within the prescribed time, it is deemed an advance to the associated enterprise and interest is computed in the prescribed manner. The assessee may instead opt to pay additional income-tax at the rate of 18%, which is final and ends the secondary adjustment from the date of payment.
Scope
Section 170 is in Chapter X. The Act came into force on the 1st April, 2026 (section 1(3)), save as otherwise provided; later amendments, rules and notifications should be checked. The primary adjustment depends on the arm's length price; see section 165 for how the price is determined and sections 167 to 169 for safe harbour and advance pricing agreements. For the Chapter, see Chapter X of the Income-tax Act, 2025. If you have received an upward adjustment and need to decide on the options, our tax planning advisory team can help.
Section 170(1): when a secondary adjustment is required
An assessee shall make a secondary adjustment in every case where a primary adjustment of one crore rupees or more to the transfer price:
| Clause | Situation |
|---|---|
| (a) | has been made by the assessee on his own in his return of income |
| (b) | made by the Assessing Officer has been accepted by him |
| (c) | is determined by an advance pricing agreement entered into by him under section 168 |
| (d) | is made as per the safe harbour rules made under section 167 |
| (e) | is arising as a result of resolution of an assessment by way of the mutual agreement procedure under an agreement entered into under section 159 for avoidance of double taxation |
The threshold is "one crore rupees or more", so an adjustment of exactly one crore rupees is covered. The section applies to the primary adjustment, which is defined in sub-section (9)(c).
Section 170(2): the deemed advance
The excess money, or part of it, available with the associated enterprise is deemed to be an advance made by the assessee to that associated enterprise if:
- (a) as a result of the primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee; and
- (b) the excess money or part of it is not repatriated to India within the time as may be prescribed.
The time is left to the Income-tax Rules, 2026; see our rule-wise guides.
Section 170(3): where the money may come from
The excess money, or part of it, may be repatriated from any of the associated enterprises of the assessee which is not a resident in India. So repatriation need not come from the very enterprise that holds the excess.
Section 170(4): interest
The interest on the advance referred to in sub-section (2) is computed in such manner as may be prescribed. The Act itself prints no rate or method for it.
Section 170(5) to (8): the option to pay additional tax
| Sub-section | Rule |
|---|---|
| (5) | Without prejudice to sub-section (2), where the excess money or part of it has not been repatriated within the prescribed time, the assessee may, at his option, pay additional income-tax at the rate of 18% on that excess money or part |
| (6) | The tax so paid is treated as the final payment of tax on the excess money or part not repatriated, and no further credit is to be claimed by the assessee or by any other person for the tax so paid |
| (7) | Deduction under any other provision of the Act is not allowed to the assessee in respect of the amount on which tax has been paid under sub-section (5) |
| (8) | Where the additional income-tax is paid, the assessee is not required to make the secondary adjustment under sub-section (1) and to compute interest under sub-section (4) from the date of payment of that tax |
Note the words "from the date of payment": interest is not required to be computed from that date, which is different from saying that no interest ever arises for the earlier period. The Act is silent on the earlier period beyond what sub-section (4) prescribes.
Section 170(9): definitions
| Term | Meaning |
|---|---|
| "arm's length price" | the meaning assigned in section 173(a) |
| "excess money" | the difference between the arm's length price determined in primary adjustment and the price at which the international transaction has actually been undertaken |
| "primary adjustment" | the determination of transfer price as per the arm's length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the assessee |
| "secondary adjustment" | an adjustment in the books of account of the assessee and its associated enterprise to reflect that the actual allocation of profits between them is consistent with the transfer price determined as a result of the primary adjustment, thereby removing the imbalance between the cash account and the actual profit of the assessee |
A printing slip: after "173(a)" in clause (a) the copy shows a stray "83"; it is not part of the text.
How it works step by step
- A primary adjustment occurs. The transfer price is adjusted so that total income goes up or the loss comes down (sub-section (9)(c)).
- Check the size and the route. A secondary adjustment arises where the primary adjustment is one crore rupees or more and came in through one of the five routes in sub-section (1).
- Excess money is identified. It is the gap between the arm's length price and the actual price (sub-section (9)(b)).
- Repatriate within the prescribed time, from any non-resident associated enterprise (sub-section (3)).
- If not repatriated, the unrepatriated part is deemed an advance, with interest as prescribed; or the assessee may opt for the 18% additional income-tax, which is final.
- Books. The secondary adjustment itself is an adjustment in the books of the assessee and the associated enterprise.
A worked example
Names and amounts are invented; the threshold and rate are as printed.
Sundar Exports Limited sells goods to its non-resident associated enterprise at Rs. 4,00,00,000 when the arm's length price is Rs. 5,50,00,000. In its own return it adjusts income upwards by the difference, a primary adjustment of Rs. 1,50,00,000 under sub-section (1)(a).
- Excess money = Rs. 5,50,00,000 - Rs. 4,00,00,000 = Rs. 1,50,00,000.
- Rs. 1,50,00,000 is not less than one crore rupees, so a secondary adjustment is required.
- The prescribed time passes, and Rs. 50,00,000 is repatriated from a non-resident associated enterprise of Sundar. The unrepatriated Rs. 1,00,00,000 is deemed an advance to the associated enterprise, and interest on it is computed in the prescribed manner.
- If Sundar opts instead to pay additional income-tax at 18% on the Rs. 1,00,00,000, the tax is Rs. 18,00,000 (Rs. 1,00,00,000 x 18%). That is final: no credit for it, no other deduction on that amount, and no further secondary adjustment or interest from the date of payment.
Need help with a secondary adjustment?
The choice between repatriating, carrying an interest-bearing advance and paying the 18% additional tax turns on the numbers and the timing. Our tax planning advisory service can model the options before you decide.
Key takeaways
- A secondary adjustment is required where the primary adjustment is one crore rupees or more and arises through one of the five routes.
- Unrepatriated excess money is deemed an advance, with interest as prescribed.
- The assessee may opt to pay additional income-tax at 18% on the unrepatriated excess money.
- That 18% tax is final, with no credit and no deduction under any other provision.
- Once it is paid, there is no need for a secondary adjustment or interest from the date of payment.
Read next
- Sections 167 to 169: safe harbour rules and advance pricing agreement
- Sections 171 to 173: documents, accountant's report and definitions
- Section 165: determination of arm's length price
- Section 159: relief under agreements with other countries
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.