When it comes to Indian taxation, Transfer Pricing is a complex but crucial area for companies dealing with international transactions or transactions with associated enterprises. One such provision that plays a vital role in this space is Section 92CD of the Income Tax Act.
If you’re a business owner, finance professional, or tax consultant, understanding this section is important to stay compliant and avoid penalties. In this blog, we’ll break it down step by step in simple language, so you know exactly what it means, when it applies, and how to deal with it efficiently—especially with the help of online billing software and GST billing software like MargBooks.
What is Section 92CD of the Income Tax Act?
Section 92CD of Income Tax Act deals with the effect of an Advance Pricing Agreement (APA). APAs are agreements between a taxpayer and the Income Tax Department to determine the arm’s length price of international transactions. These agreements are useful in avoiding long transfer pricing disputes.
Once an APA is signed and comes into effect, 92CD ensures that any past return filed by the taxpayer, which doesn’t align with the APA terms, must be revised accordingly.
Why Was Section 92CD Introduced?
Let’s say a company enters into an APA with the tax authorities for a block of five years—three years in the past (called rollback years) and two future years. Now, for those past years, the company may have already filed income tax returns without considering the APA terms.
This is where Section 92CD comes into play. It mandates revision of the returns for those rollback years, so the income is reported correctly as per the APA.
In short, it brings harmony between previously filed returns and the APA and ensures consistency in transfer pricing treatment.
Step-by-Step Guide to Comply with Section 92CD
Step 1: Enter into an APA
First and foremost, the taxpayer must enter into a valid APA with the Central Board of Direct Taxes (CBDT). This can be a unilateral, bilateral, or multilateral agreement.
Step 2: Identify Rollback Years
The APA agreement may include rollback provisions for up to 4 previous assessment years. Identify which years are covered and check if income tax returns have already been filed for those years.
Step 3: File Modified Return
Once the APA is signed, and if returns for rollback years have already been filed, the taxpayer must file a modified return under Section 92CD. This return needs to reflect income or expenses as per the APA.
Important Points to Remember:
- The modified return should be filed within 3 months from the end of the month in which the APA was signed.
- It’s filed using Form 3CEFA.
- If the modified return results in additional tax liability, it must be paid with interest.
Step 4: Assessment/Re-assessment
After receiving the modified return, the Assessing Officer (AO) may proceed to assess or reassess the income for those years based on the revised figures.
Why Compliance is Critical
Failure to comply with Section 92CD of Income Tax Act may lead to:
- Rejection of APA benefits
- Penalties for under-reporting of income
- Lengthy litigation with the department
Hence, it is always advisable to maintain clear documentation and proper reporting—something that online billing software and GST billing software can make easier.
How GST Billing Software Like MargBooks Helps
In the age of digitization, having structured financial data makes it easier to comply with laws like Section 92CD. This is where advanced tools like MargBooks come into the picture.
Here’s how MargBooks can help you stay compliant:
- Centralized Data Management: Store years of transaction data in one place for easy access during APA reviews or tax scrutiny.
- Customizable Reports: Generate reports on international transactions, purchase/sale ledgers, and reconciliation in minutes.
- Error-Free Documentation: Avoid discrepancies in reporting by using real-time billing records.
- GST-Compliant: It doubles up as a GST billing software, so you can manage both direct and indirect tax records from the same platform.
Whether you run a mid-size trading company or a large enterprise, software like MargBooks reduces your reliance on manual data entry and lets you focus on compliance and business growth.
Benefits of Using Online Billing Software for Tax Compliance
Here’s a quick list of benefits businesses gain by digitising their operations:
- Time-saving: No need to hunt for old records at the time of filing revised returns.
- Accuracy: Less room for manual error in computation.
- Audit-ready Reports: Be prepared for audits and assessments with properly organized digital records.
- Multi-year Data Access: Easily access data from past financial years for rollback adjustments under APA.
Final Thoughts
Section 92CD of the Income Tax Act plays a pivotal role in aligning a taxpayer’s past filed returns with the terms of an APA. While the law may sound technical, following it becomes much easier when you have clarity and the right tools at your disposal.
For businesses engaging in international transactions, staying updated and compliant is not optional—it’s necessary. Leveraging modern tools like MargBooks, which is not just an online billing software but also a trusted GST billing software, can ensure your business doesn’t fall foul of complex tax provisions like Section 92CD.
