international transactions in a financial year determines whether detailed TP compliance is required

Income Tax Transfer Pricing (TP) rules, the total value of your international transactions in a financial year determines whether detailed TP compliance is required, regardless of individual shipment size. Let me explain:

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1️⃣ Thresholds for TP Documentation (India)

TP Requirement	Applicable Transaction Value	Notes
Local TP documentation (Form 3CEB/Local File)	International transactions > ₹2 crore in a FY	Required even for small exporters if total exports to related parties exceed this limit.
Master File (Global TP documentation)	Total international transactions > ₹10 crore in a FY	Only large exporters need to maintain Master File.
No TP documentation	Transactions ≤ ₹2 crore in a FY	Arm’s-length principle still applies, but formal documentation not mandatory.

Important: These thresholds apply to cumulative international transactions with related parties, not to individual shipments.

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2️⃣ Key Implications

1. Small individual shipment: Even ₹50,000 shipment counts toward cumulative total.

2. Crossing threshold: Once total international transactions with related parties exceed ₹2 crore, Local File TP documentation becomes mandatory.

3. Arm’s-length pricing always applies: Regardless of whether TP documentation is required, authorities can recompute income if pricing is unreasonably low/high.

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3️⃣ Practical Advice for Exporters

• Track cumulative exports to related parties throughout the year.

• Keep pricing support, invoices, and contracts ready.

• For unrelated parties, TP rules do not apply, so thresholds don’t matter.

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Arm’s-Length Principle vs. Documentation Threshold

1. Arm’s-Length Principle

   • This is a fundamental requirement under Transfer Pricing rules.

   • All international transactions with related parties must be conducted as if they were with an independent party.

   • This ensures that revenue and profits are not artificially shifted to reduce tax liability.

   • Applies to all sizes of transactions, no matter how small.

2. Documentation Thresholds

   • TP documentation (Local File / Master File) is required only if total international transactions exceed prescribed limits:

     • Local File: ₹2 crore in a FY

     • Master File: ₹10 crore in a FY

   • If your total related-party transactions are below these thresholds, you do not need to prepare formal TP documentation.

3. Key Point

   • Even if documentation is not mandatory, arm’s-length pricing must still be followed.

   • Tax authorities can still recompute income if pricing is found to be unreasonable.

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✅ Example

• Export of goods worth ₹50 lakh in total to a related party in a year:

  • Threshold for Local File = ₹2 crore → documentation not required

  • Arm’s-length principle still applies → price must reflect fair market value

  • If authorities find undervaluation → income can be adjusted.